CH. 3 #9 Recompute the net present values using (a) a cost of money of 0.20 and (b) a cost of money of 0.05 for each of the investments of problem 8.
CH. 3 #9 Recompute the
In the question given above, net present value(NPV) is calculated at 15% cost of capital for all the investment alternatives but in this solution net present value(NPV) is calculated at
a) 20% cost of capital and
b) 5% cost of capital
for each investment.
Cost of capital is the required rate of return which must be earned on the investment done by the company to maximize its wealth and meet the expectations of the stakeholders so as to generate adequate surplus amount of money by analyzing the investment through its expected cash flows.
Net present value(NPV) is calculated to determine the actual cash flows generated from investing in the particular investment by selecting the best alternative among the various alternatives available in present value of money.
Step by step
Solved in 3 steps
