Question 3 A company has $20 million available to invest in new projects. There are three independent projects that it is considering. The after-tax cash flows of the projects are as follows: Project ABC Year 0 cash flow (20 million) (10 million) (10 million) Year 1 cash flow 20 million 8 million 6 million Year 2 cash flow 10 million 7 million 10 million Calculate the IRR, PI and NPV of each of the two-year projects and recommend which project(s) the company should invest in (and why). The company's cost of capital is 12%.
Question 3 A company has $20 million available to invest in new projects. There are three independent projects that it is considering. The after-tax cash flows of the projects are as follows: Project ABC Year 0 cash flow (20 million) (10 million) (10 million) Year 1 cash flow 20 million 8 million 6 million Year 2 cash flow 10 million 7 million 10 million Calculate the IRR, PI and NPV of each of the two-year projects and recommend which project(s) the company should invest in (and why). The company's cost of capital is 12%.
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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Transcribed Image Text:Question 3
A company has $20 million available to invest in new projects. There are three independent projects
that it is considering. The after-tax cash flows of the projects are as follows:
Project
ABC
Year 0 cash flow
(20 million)
(10 million)
(10 million)
Year 1 cash flow
20 million
8 million
6 million
Year 2 cash flow
10 million
7 million
10 million
Calculate the IRR, PI and NPV of each of the two-year projects and recommend which project(s) the
company should invest in (and why). The company's cost of capital is 12%.
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