Prepare an Excel spreadsheet on your own to present your financial decisions for two projects using NPV, IRR and the Payback Period techniques. You will be graded on your spreadsheet (0-10 pts.)
There are two mutually exclusive projects A and B. Both projects require an investment of $10 million but the timing is different for the rest of the expected net cash flows.
For project A For project B
Period 0 = – $10.0 m – $10.0 million
Period 1 = 6.5 3.5 m
Period 2 3.0 3.5
Period 3 = 3.0 3.5
Period 4 = 1.5 3.5
Total Inflow = $14.0m $14.0m
Prepare 3 possible scenarios for each project. Use the 5% discount rate (WACC) for a forecast if these are low risk projects, 10% if we think they have a normal amount of risk and 15% if we decide that these are high risk projects.
1 – Show the NPV’s, the IRR’s and the Payback Periods for each project on your spreadsheet.
2 – Assume these projects are mutually exclusive. Which ones would you choose….
using a 5% discount rate?
using a 10% discount rate?
using a 15% discount rate?
3 – Assume the projects are independent, which ones would you choose at each discount rate (in each scenario?)
Learning to use Excel is a very important skill for a student in accounting, finance and economics. Employers are very impressed with this skill. They don’t expect you to learn this on-the-job; they expect you to have this skill already.
Make sure your name and the date are part of your spreadsheet. Print it on a piece of paper to be sure the format is OK when it’s printed. Send me the spreadsheet as an attachment. It should all fit on one page.