Question

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.

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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