Reference no: EM132645728
CAPITAL BUDGETING CRITERIA
You must analyze two projects, X and Y. Each project costs $10,000, and the firm's WACC is 12%. The expected net cash flows are as follows:
1 2 3 4
Project X -$10,000 $6,500 $3,000 $1,000
Project Y - $10,000 $3,500 $3,500 $3,500
Question a. Calculate each project's NPV, IRR, MIRR, payback, and discounted payback.
Question b. Which project(s) should be accepted if they are independent?
Question c. Which project(s) should be accepted if they are mutually exclusive?
Question d. How might a change in the WACC produce a conflict between the NPV and IRR rankings of the two projects? Would there be a conflict if WACC were 5%? (Hint: Plot the NPV profiles. The crossover rate is 6.21875%.)
Question e. Why does the conflict exist?
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