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PLEASE PREPARE SOLUTIONS FOR THE ATTACHED EXCEL SHEET, AND FILL THE ANSWERS IN ITSELF.
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Explanation & Answer
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Solution
Chapter:
10
Problem:
23
Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as
follows:
Time
0
1
2
3
4
5
6
7
Expected net cash flows
Project A Project B
($375)
($575)
($300)
$190
($200)
$190
($100)
$190
$600
$190
$600
$190
$926
$190
($200)
$0
a. If each project's cost of capital was 12 percent, which project should be selected? If the cost of capital was 18
percent, what would be the proper choice?
@ a 12% cost of capital
WACC =
@ a 18% cost of capital
12%
WACC =
18%
NPV A =
$226.96
NPV A =
$18.24
NPV B =
$206.17
NPV B =
$89.54
At a cost of capital of 12%, Project A should be selected. However, if the cost of capital rises to 18%, then the choice is
reversed, and Project B s...