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Homework answers / question archive / 1) For the calculations of a, b, c, e, f, g, h from the data below
1) For the calculations of a, b, c, e, f, g, h from the data below.
2) For the calculations of d, under the assumption that both projects are mutually exclusive,
(Data)
Cash Flows for Franchises L and S. (Discount rate r or WACC is 10%)
L's CFs
S's CFs
0 year
-100
-100
1 year
20
80
2 year
50
40
3 year
80
20
a. NPVL , b. IRRL , c. MIRRL, d. Crossover rate or point e. PIL , f. PaybackL ,
g. Discounted PaybackL , h.EAAL
a). NPV for Franchises L = $19.61
Franchises S = $20.81
b). IRR for Franchises L = 18.79%
Franchises S = 24.86%
c). MIRR for Franchises L = 16.77%
Franchises S = 17.16%
d). Crossover rate = 8.68%
e) PI for Franchises L = 1.20
Franchises S = 1.21
f). Payback period for Franchises L = 2.38 years
Franchises S = $20.81 = 1.50 years
g). Discounted payback period for Franchises L = 2.67 years
Franchises S = 1.83 years
h). EAA for Franchises L = $7.89
Franchises S = $8.37
The project are mutually exclusive so the project Franchises S should be accepted because it has higher NPV, IRR, MIRR, PI, EAA than project Franchises L and lower payback period, Discounted payback period than Franchises L.
