Question

Asked Mar 28, 2019

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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?

Step 1

The question has 6 sub parts and we’re entitled to solve only 3 sub parts in one question. So, kindly post another question for the remaining sub parts.

Step 2

Definitions:

Net Present Value: NPV is the current value of all the cash inflow and outflow of a project or investment.

Internal Rate of Return: IRR is the rate that a project or investment is expected to create.

Step 3

a. Net Present Value for each of the investment option has been calculated...

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