The Serrano Corporation is considering signing a 1- year contract with one of two computer-based marketing firms. Although one is more expensive, it offers a more extensive program and thus will provide higher after-tax net cash flows. Assume these two options are mutually exclusive and that the required rate of return is 12 percent. Given the following after-tax net cash flows: Year 0 1 Option A -$50,000 70,000 a. Calculate the net present value. b. Calculate the profitability index. c. Calculate the internal rate of return. d. Option B -$100,000 130,000 If there is no capital - rationing constraint, which project should be selected? If there is capital-rationing constraint, how should the decision be made?

The Serrano Corporation is considering signing a 1- year contract with one of two computer-based marketing firms. Although one is more expensive, it offers a more extensive program and thus will provide higher after-tax net cash flows. Assume these two options are mutually exclusive and that the required rate of return is 12 percent. Given the following after-tax net cash flows: Year 0 1 Option A -$50,000 70,000 a. Calculate the net present value. b. Calculate the profitability index. c. Calculate the internal rate of return. d. Option B -$100,000 130,000 If there is no capital - rationing constraint, which project should be selected? If there is capital-rationing constraint, how should the decision be made?

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Description: 0No3. The Serrano Corporation is considering signing a 1-year contract with one of twocomputer-based marketing firms. Although one is more expensive, it offers a moreextensive program and thus will provide higher after-tax net cash flows. Assume the

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 9P

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