Fin problem (10-23) gardial fisheries

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Build a Model: Capital


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Start with the partial model in the fileCh10 P23 Build a Model.xlson the textbook’sWeb site. Gardial Fisheries is considering two mutually exclusive investments. Theprojects’expected net cash flows are as follows:


Expected Net Cash Flows


Year Project A Project B


0 -$375 −$575


1 −300 190


2 −200 190


3 −100 190


4 600 190


5 600 190


6 926 190


7 −200 0


a. If each project’s cost of capital is 12%, which project should be selected? If thecost of capital is 18%, what project is the proper choice?


b. Construct NPV profiles for Projects A and B.


c. What is each project’s IRR?


d. What is the crossover rate, and what is its significance?


e. What is each project’s MIRR at a cost of capital of 12%? At r = 18%?


(Hint:Consider Period 7 as the end of Project B’s life.)


f. What is the regular payback period for these two projects?


g. At a cost of capital of 12%, what is the discounted payback period for these twoprojects?


h. What is the profitability index for each project if the cost of capital