A firm has the following investment Cash inflows Year A B C 1 $1,100 $3,600 - 2 1,100 - - 3 1,100 - $4,562 Each investment costs$3,000; investment B and C mutually exclusive, and the firm's cost of capital is 8 percent. f. .If the firm could reinvest the $3,600 earned in year 1 from invest- ment B at 10 percent, what effect would that information have on your answer to part e? Would the answer be different if the rate were 14 percent? g. If the firm’s cost of capital had been 10 percent, what would be invest- ment A’s internal rate of return? h. The payback method of capital budgeting selects which investment? Why?
A firm has the following investment
Year A B C
1 $1,100 $3,600 -
2 1,100 - -
3 1,100 - $4,562
Each investment costs$3,000; investment B and C mutually exclusive, and the firm's cost of capital is 8 percent.
f. .If the firm could reinvest the $3,600 earned in year 1 from invest- ment B at 10 percent, what effect would that information have on your answer to part e? Would the answer be different if the rate were 14 percent?
g. If the firm’s cost of capital had been 10 percent, what would be invest- ment A’s
h. The payback method of capital budgeting selects which investment? Why?
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