- Submitted By: Stephania-Alexis
- Date Submitted: 11/15/2015 5:34 AM
- Category: Miscellaneous
- Words: 276
- Page: 2

Use the following information for Questions 1 through 3:

Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows:

(b) If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?

(a) What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.)

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

© 2015 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of Strayer University.

FIN 534 Homework Set #4 1156 (5-19-2015) Page 1 of 2

￼

￼FIN 534 – Homework Set #4

Use the following information for Question 4:

The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process:

Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter’s cost of capital for an average-risk project is 10%.

￼Net After-Tax Cash Flows

Year 0

1

2

3 4 5 5*

4.

P = 0.2 −$100,000

20,000 20,000 20,000 20,000 20,000 0

P = 0.6 −$100,000 30,000 30,000

30,000 30,000 30,000 20,000

P = 0.2 −$100,000 40,000 40,000 40,000 40,000 40,000 30,000

Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected values for the net cash flow in each year.)