Q No. 3: M/s Sons & Sons is considering two projects, A & B, with cash flows as shown below: period Cash Flow of Project A Project B 0 -90,000 -150,000 1 30,000 72,000 2 30,000 35,000 3 30,000 40,000 4 30,000 25,000 Calculate discounted payback period, net present value and internal rate of return for each project using opportunity cost of capital 13 % & 9% for project A & B respectively. Which project(s) should be accepted if : (i) The projects are mutually exclusive and there is no capital constraint. (ii) The projects are independent and there is no capital constraint. (iii) The projects are independent and there is a total of $100,000 of financing for capital outlays in the coming period. c. Why the cost of capital for A might be higher than for B. State possible reason(s)
Q No. 3: M/s Sons & Sons is considering two projects, A & B, with cash flows as shown below: period Cash Flow of Project A Project B 0 -90,000 -150,000 1 30,000 72,000 2 30,000 35,000 3 30,000 40,000 4 30,000 25,000 Calculate discounted payback period, net present value and internal rate of return for each project using opportunity cost of capital 13 % & 9% for project A & B respectively. Which project(s) should be accepted if : (i) The projects are mutually exclusive and there is no capital constraint. (ii) The projects are independent and there is no capital constraint. (iii) The projects are independent and there is a total of $100,000 of financing for capital outlays in the coming period. c. Why the cost of capital for A might be higher than for B. State possible reason(s)
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 21P
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Q No. 3: M/s Sons & Sons is considering two projects, A & B, with cash flows as shown below:
|
period |
Cash Flow of |
|
|
Project A |
Project B |
|
|
0 |
-90,000 |
-150,000 |
|
1 |
30,000 |
72,000 |
|
2 |
30,000 |
35,000 |
|
3 |
30,000 |
40,000 |
|
4 |
30,000 |
25,000 |
- Calculate discounted payback period,
net present value andinternal rate of return for each project usingopportunity cost of capital 13 % & 9% for project A & B respectively. - Which project(s) should be accepted if :
(i) The projects are mutually exclusive and there is no capital constraint.
(ii) The projects are independent and there is no capital constraint.
(iii) The projects are independent and there is a total of $100,000 of financing for capital outlays in the coming period.
c. Why the cost of capital for A might be higher than for B. State possible reason(s)
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