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?
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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.)