A firm has two possible investments with the following cash inflows. Each investment costs $435, and the cost of capital is seven percent. Use Appendix B and Appendix D to answer the questions. Assume that the investments are not mutually exclusive and there are no budget restrictions.     Cash Inflows Year A   B 1 $ 270 $ 170 2   140   170 3   100   170   Based on each investment’s net present value, which investment(s) should the firm make? Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar. Investment A: $   Investment B: $   The firm should make  . Based on each investment’s internal rate of return, which investment(s) should the firm make? Round your answers to the nearest whole number. Investment A:   % Investment B:   % The firm should make  . Is this the same answer you obtained in part b? It  the same answer as obtained in part b. If the cost of capital were to increase to 9 percent, which investment(s) should the firm make? Use a minus sign to enter negative values, if any. Round your answers for the net present values to the nearest dollar and for internal rates of return to the nearest whole number. Net present values: Investment A: $   Investment B: $   Internal rates of return: Investment A:   % Investment B:   % The firm should make

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
icon
Related questions
icon
Concept explainers
Topic Video
Question

A firm has two possible investments with the following cash inflows. Each investment costs $435, and the cost of capital is seven percent. Use Appendix B and Appendix D to answer the questions. Assume that the investments are not mutually exclusive and there are no budget restrictions.

 

  Cash Inflows
Year A   B
1 $ 270 $ 170
2   140   170
3   100   170

 

  1. Based on each investment’s net present value, which investment(s) should the firm make? Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar.

    Investment A: $  

    Investment B: $  

    The firm should make  .

  2. Based on each investment’s internal rate of return, which investment(s) should the firm make? Round your answers to the nearest whole number.

    Investment A:   %

    Investment B:   %

    The firm should make  .

    Is this the same answer you obtained in part b?

    It  the same answer as obtained in part b.

  3. If the cost of capital were to increase to 9 percent, which investment(s) should the firm make? Use a minus sign to enter negative values, if any. Round your answers for the net present values to the nearest dollar and for internal rates of return to the nearest whole number.

    Net present values:

    Investment A: $  

    Investment B: $  

    Internal rates of return:

    Investment A:   %

    Investment B:   %

    The firm should make  .

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 6 images

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education