Capital budgeting problems  and what king of you used for solving (NPV and IRR PROBLEMS ) A firm has the following investment alternative. Each one lasts a year Investment                       A                                    B                    C Cach inflow                       $1,150                         $560                   $600 Cash outflow                      $1000                         $500                   $500   The firm's cost capital 7 percent. A and B are mutually exclusive, and B and C are mutually exclusive. a. What is the net value of investment A? Investment B? investment C? B. W hat is the internal rate on investment A? investment B? INvestment C? c. Which invedstment(s) should the firm make? Why? d. If the firm had unlimited sources of funds, which investments should it make? Why? e. If there another alternative, investment D, with an internal rate of return of 6 percent, would that alter your anser to question (d)? why? f. If the firm's cost of capital rose to 10 percent, what effect would that have on investment A's internal rate return?

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.