Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question

Transcribed Image Text:2. Your firm is considering investing in one of two mutually exclusive projects. Project A requires
an initial outlay of $3,500 with expected future cash flows of $2,000 per year for the next three
years. Project B requires an initial outlay of $2,500 with expected future cash flows of $1,500 per
year for the next two years. The appropriate discount rate for your firm is 12%.
Draw the timeline of two chain cycles for project A. Compute the NPV of the two chain
cycles for project A.
b.
а.
Draw the timeline of three chain cycles for project B. Compute the NPV of the three chain
cycles for project B.
Which project would you recommend?
с.
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