Investments Quick and Slow cost $1,000 each, are mutually exclusive, and have the following cash flows. The firm’s cost of capital is 7 percent. Cash Inflows Q S Year 1 $1,100 $309 2 — 309 3 — 309 4 — 309 According to the net present value method of capital budgeting, which investment(s) should the firm make? Use Appendix B and Appendix D to answer the question. Use a minus sign to enter negative values, if any. Round your answers to the nearest cent. NPV (Investment Quick): $ NPV (Investment Slow): $ The firm should make investment(s) . According to the internal rate of return method of capital budgeting, which investment(s) should the firm make? Use Appendix D to answer the question. Round your answers to the nearest whole number. IRR (Investment Quick): % IRR (Investment Slow): % The firm should make investment(s) . If Q is chosen, the $1,100 can be reinvested and earn 8 percent. Does this information alter your conclusions concerning investing in Q and S? To answer, assume that S’s cash flows can be reinvested at its internal rate of return. Use the rounded internal rate of return from part b. Use Appendix A and Appendix C to answer the question. Round your answers to the nearest cent. Terminal value (Investment Quick): $ Terminal value (Investment Slow): $ The firm should make investment(s) . Would your answer be different if S’s cash flows were reinvested at the cost of capital (7 percent)? Use Appendix C to answer the question. Round your answer to the nearest cent. Terminal value (Investment Slow): $ The firm should make investment(s) .
Investments Quick and Slow cost $1,000 each, are mutually exclusive, and have the following cash flows. The firm’s cost of capital is 7 percent. Cash Inflows Q S Year 1 $1,100 $309 2 — 309 3 — 309 4 — 309 According to the net present value method of capital budgeting, which investment(s) should the firm make? Use Appendix B and Appendix D to answer the question. Use a minus sign to enter negative values, if any. Round your answers to the nearest cent. NPV (Investment Quick): $ NPV (Investment Slow): $ The firm should make investment(s) . According to the internal rate of return method of capital budgeting, which investment(s) should the firm make? Use Appendix D to answer the question. Round your answers to the nearest whole number. IRR (Investment Quick): % IRR (Investment Slow): % The firm should make investment(s) . If Q is chosen, the $1,100 can be reinvested and earn 8 percent. Does this information alter your conclusions concerning investing in Q and S? To answer, assume that S’s cash flows can be reinvested at its internal rate of return. Use the rounded internal rate of return from part b. Use Appendix A and Appendix C to answer the question. Round your answers to the nearest cent. Terminal value (Investment Quick): $ Terminal value (Investment Slow): $ The firm should make investment(s) . Would your answer be different if S’s cash flows were reinvested at the cost of capital (7 percent)? Use Appendix C to answer the question. Round your answer to the nearest cent. Terminal value (Investment Slow): $ The firm should make investment(s) .
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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Problem 22-11 Investments Quick and Slow cost $1,000 each, are mutually exclusive, and have the following cash flows. The firm’s cost of capital is 7 percent.
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