Homework SourseA firm with a WACC of 10 is considering the following mutual
A firm with a WACC of 10% is considering the following mutually exclusive projects:
Which project would you recommend?
Select the correct answer.
| 0 | 1 | 2 | 3 | 4 | 5 |
Solution
Ans c. Project 2, since the NPV2 > NPV1.
| Year | Project 1 (i) | Project 2 (ii) | DF@ 10% (iii) | PV of Project 1 ( (i) * (iii) ) | PV of Project 2 ( (ii) * (iii) ) | |
| 0 | -200 | -450 | 1 | -200 | -450 | |
| 1 | 45 | 300 | 0.909 | 40.91 | 272.73 | |
| 2 | 45 | 300 | 0.826 | 37.19 | 247.93 | |
| 3 | 45 | 80 | 0.751 | 33.81 | 60.11 | |
| 4 | 240 | 80 | 0.683 | 163.92 | 54.64 | |
| 5 | 240 | 80 | 0.621 | 149.02 | 49.67 | |
| NPV | 224.85 | 235.08 |
