A firm has the following investment alternatives (refer to image): Each investment costs $3,000; investments B and C are mutually exclusive, and the firm’s cost of capital is 8 percent. a.) What is the net present value of each investment? b.) According to the net present values, which investment(s) should the firm make? Why? c.) What is the internal rate of return on each investment?
A firm has the following investment alternatives (refer to image): Each investment costs $3,000; investments B and C are mutually exclusive, and the firm’s cost of capital is 8 percent. a.) What is the net present value of each investment? b.) According to the net present values, which investment(s) should the firm make? Why? c.) What is the internal rate of return on each investment?
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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A firm has the following investment alternatives (refer to image):
Each investment costs $3,000; investments B and C are mutually exclusive, and the firm’s cost of capital is 8 percent.
a.) What is the
b.) According to the net present values, which investment(s) should the firm make? Why?
c.) What is the internal rate of
Transcribed Image Text:Cash Inflows
A
B
Year 1
$1,100
$3,600
2
1,100
3
1,100
$4,562
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