Making capital budgeting decisions-add to shareholder value

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Reference no: EM131065648

A company is considering two mutually exclusive expansion plans. Plan A requires a $41 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.55 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 10%

A. Calculate each project's NPV. Round your answers to two decimal places. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55.

Plan A $ million

Plan B $ million

-.Calculate each project's IRR. Round your answer to two decimal places.

Plan A %

Plan B %

b. Graph the NPV profiles for Plan A and Plan B and approximate the crossover rate to the nearest percent. %

c. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to the nearest hundredth. %

d. Why is NPV better than IRR for making capital budgeting decisions that add to shareholder value?

Reference no: EM131065648

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