c) Project A and Project B are two mutually exclusive projects with conventional cash flows. The internal rate of return (IRR) for Project A is 17.22%. The internal rate of return (IRR) for project B is 23.92%. The net present value (NPV) for each project are calculated at 5% p.a. effective and 10% p.a. effective cost of capital as shown below: Cost of capital 5% 10% NPV (S) (Project A) NPV (S) (Project B) 2,328.45 1,939.24 1,229.90 1,304.56 Four companies are considering investing in the projects. The cost of capital for each company is listed below:
c) Project A and Project B are two mutually exclusive projects with conventional cash flows. The internal rate of return (IRR) for Project A is 17.22%. The internal rate of return (IRR) for project B is 23.92%. The net present value (NPV) for each project are calculated at 5% p.a. effective and 10% p.a. effective cost of capital as shown below: Cost of capital 5% 10% NPV (S) (Project A) NPV (S) (Project B) 2,328.45 1,939.24 1,229.90 1,304.56 Four companies are considering investing in the projects. The cost of capital for each company is listed below:
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
Related questions
Question
5c
Transcribed Image Text:c) Project A and Project B are two mutually exclusive projects with conventional cash flows. The internal rate of
return (IRR) for Project A is 17.22%. The internal rate of return (IRR) for project B is 23.92%. The net present
value (NPV) for each project are calculated at 5% p.a. effective and 10% p.a. effective cost of capital as
shown below:
Cost of capital
5%
10%
A. Project A Only
B. Project B Only
C. Both Projects
NPV ($)
(Project A)
D. Neither Projects
E. Not Sure. More information is required.
2,328.45
1,229.90
Four companies are considering investing in the projects. The cost of capital for each company is listed below:
Cost of
capital
4%
Company
Company Tortoise
Company Rabbit
Company Ostrich
Company Cheetah
Company
Company Tortoise
Company Rabbit
Company Ostrich
Company Cheetah
Pick one piece of advice from the list below for each company. Write the letter in the "Advice" column.
NPV (S)
(Project B)
12%
18%
1,939.24
1,304.56
Cost of capital Advice
4%
24%
12%
18%
24%
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