A firm's cost of capital is 12 percent. The firm has three investments to choose among; the cash flows of each are as follows: B: $ C: $ A: $3,378 Each investment requires a $2,000 cash outlay, and investments B and C are mutually exclusive. Use Appendix A, Appendix B and Appendix D to answer the questions. Assume that the investments are not mutually exclusive and there are no budget restrictions. a. Which investment(s) should the firm make according to the net present values? Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar. A: $ -69 147 B: 71 10 14 The firm should make investment(s) B b. Which investment(s) should the firm make according to the internal rates of return? Round your answers to the nearest whole number. % 16 % C: The firm should make investment(s) C Year 1 2 3 4 A % A $804 804 804 Cash Inflows B с $2,320 c. If all funds from investment C are reinvested at 14 percent, which investment(s) should the firm make? Round your answer to nearest dollar. Terminal value of investment C: $ The firm should make investment(s) c Would your answer be different if the reinvestment rate were 12 percent? Round your answer to the nearest dollar. Terminal value of investment C: $ The firm should make investment(s) B
A firm's cost of capital is 12 percent. The firm has three investments to choose among; the cash flows of each are as follows: B: $ C: $ A: $3,378 Each investment requires a $2,000 cash outlay, and investments B and C are mutually exclusive. Use Appendix A, Appendix B and Appendix D to answer the questions. Assume that the investments are not mutually exclusive and there are no budget restrictions. a. Which investment(s) should the firm make according to the net present values? Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar. A: $ -69 147 B: 71 10 14 The firm should make investment(s) B b. Which investment(s) should the firm make according to the internal rates of return? Round your answers to the nearest whole number. % 16 % C: The firm should make investment(s) C Year 1 2 3 4 A % A $804 804 804 Cash Inflows B с $2,320 c. If all funds from investment C are reinvested at 14 percent, which investment(s) should the firm make? Round your answer to nearest dollar. Terminal value of investment C: $ The firm should make investment(s) c Would your answer be different if the reinvestment rate were 12 percent? Round your answer to the nearest dollar. Terminal value of investment C: $ The firm should make investment(s) B
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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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
Nn. 118.
Transcribed Image Text:Problem 22-05
A firm's cost of capital is 12 percent. The firm has three investments to choose among; the cash flows of each are as follows:
B: $
C: $
A:
147
B:
$3,378
Each investment requires a $2,000 cash outlay, and investments B and C are mutually exclusive. Use Appendix A, Appendix B and
Appendix D to answer the questions. Assume that the investments are not mutually exclusive and there are no budget restrictions.
a. Which investment(s) should the firm make according to the net present values? Use a minus sign to enter negative values, if any.
Round your answers to the nearest dollar.
A: $
-69
71
10
14
The firm should make investment(s) B
b. Which investment(s) should the firm make according to the internal rates of return? Round your answers to the nearest whole
number.
%
16
%
C:
The firm should make investment(s) c
Year
1
2
3
4
▸
%
A
$804
804
804
Cash Inflows
B
с
$2,320
c. If all funds from investment C are reinvested at 14 percent, which investment(s) should the firm make? Round your answer to the
nearest dollar.
Terminal value of investment C: $
The firm should make investment(s) c
Would your answer be different if the reinvestment rate were 12 percent? Round your answer to the nearest dollar.
Terminal value of investment C: $
The firm should make investment(s) B
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