SPREADSHEET PROBLEM
(1023)
Build a Model: Capital
Budgeting Tools
Start with the partial model in the file Ch10 P23 Build a Model.xls on the textbook’s
Web site. Gardial Fisheries is considering two mutually exclusive investments. The
projects’ expected 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 selected? If the
cost of capital is 18%, what project is the proper choice?
b. Construct NPV profiles for Projects A and B.
c. What is each project’s IRR?
d. What is the crossover rate, and what is its significance?
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 Project B’s life.)
f. What is the 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 the profitability index for each project if the cost of capital