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a. Calculate the NPV of each project, using a cost of capital of 15%. b. Rank acceptable projects by NPV. c. Calculate the IRR of each project, and use it to determine the highest cost of cap- ital at which all the projects would be acceptable.

a. Calculate the NPV of each project, using a cost of capital of 15%. b. Rank acceptable projects by NPV. c. Calculate the IRR of each project, and use it to determine the highest cost of cap- ital at which all the projects would be acceptable.

Essentials Of Investments
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
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NPV, with rankings Botany Bay, Inc., a maker of casual clothing, is considering four projects. Because of past financial difficulties, the company has a high cost of capital at 15%. Project A S50,000 Project B Project C Project D S180,000 Initial investment (CFo) S100,000 s80,000 Cash inflows (CF;) $35,000 Year (t) $20,000 $20,000 $100,000 20,000 50,000 40,000 80,000 20,000 50,000 60,000 60,000 a. Calculate the NPV of each project, using a cost of capital of 15%. b. Rank acceptable projects by NPV. c. Calculate the IRR of each project, and use it to determine the highest cost of cap- ital at which all the projects would be acceptable. d. If Project A, B, C, D are independent projects, which project(s)will you propose to be implemented? If Project A, B, C, D are mutually exclusive projects, which project will you propose to be implemented.
Transcribed Image Text:NPV, with rankings Botany Bay, Inc., a maker of casual clothing, is considering four projects. Because of past financial difficulties, the company has a high cost of capital at 15%. Project A S50,000 Project B Project C Project D S180,000 Initial investment (CFo) S100,000 s80,000 Cash inflows (CF;) $35,000 Year (t) $20,000 $20,000 $100,000 20,000 50,000 40,000 80,000 20,000 50,000 60,000 60,000 a. Calculate the NPV of each project, using a cost of capital of 15%. b. Rank acceptable projects by NPV. c. Calculate the IRR of each project, and use it to determine the highest cost of cap- ital at which all the projects would be acceptable. d. If Project A, B, C, D are independent projects, which project(s)will you propose to be implemented? If Project A, B, C, D are mutually exclusive projects, which project will you propose to be implemented.
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