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Tutorial 2 Capital Budgeting 1. Project K costs $52,125, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 12%. a. b. c. d. e. What is the project’s NPV? What is the project’s IRR? What is the project’s MIRR? What is the project's payback? What is the project's discounted payback? 2. A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: 0 1 2 3 Project A -$300 -$387 -$193 -$100 Project B -$405 $134 $134 $134 a. b. c. d. e. 4 5 6 7 $600 $134 $600 $134 $850 $134 -$180 $0 What is the NPV for project A and B? What is the IRR for project A and B? What is the MIRR for project A and B? From your answers to parts a-c, which project would be selected? Construct NPV profiles for Projects A and B. Discount Rate 0.0% 10.0 12.0 18.1 20.0 24.0 30.0 NPV Plan A NPV Plan B f. Calculate the crossover rate where the two projects' NPVs are equal. g. What is each project's MIRR at a WACC of 18%?