Gardial Fisheries is considering two manually exclusive investments. The projects’ anticipated 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 chosen? If the cost of capital is 18%, what project is the proper choice?
b. Create NPV profiles for Project A and B.
c. What is each project’s IRR?
d. What is crossover rate, and what is its importance?
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 Projects B’s life.)
f. What is regular payback period for these two projects?
g. At a cost of capital of 12%, what is the discounted payback period for these two projects?
h. What is profitability index for each project if cost of capital is?