Year O 2 3 4 O $4.162.90 O $4.404.83 O $4,280.07 O $3,811.27 O $3.622.02 Assuming that the relevant cost of capital for both projects is 10%, you should be able to determine the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that the firm has capital rationing, but knows that its true reinvestment rate is 21%, while its cost of capital is 10 percent. Given this information, determine the modified net present value (MNPV) for Project A. Project A Cash Flow $10,000 00 $3.000.00 $4,000.00 $5,000.00 $3,000.00 Project B Cash Flow $11,000 00 $5,000.00 $4,000.00 $4,000.00 $3,000.00

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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Year
2
3
4
O
1
O $4.404.83
O $4.162.90
O $3.811.27
O $4.280.07
O $3,622.02
Assuming that the relevant cost of capital for both projects is 10%, you should be able to determine
the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that
the firm has capital rationing, but knows that its true reinvestment rate is 21%, while its cost of
capital is 10 percent. Given this information, determine the modified net present value (MNPV) for
Project A.
Project A
Cash Flow
$10,000 00
$3.000.00
$ 4.000.00
$5,000.00
$3,000.00
Project B
Cash Flow
$11,000.00
$5.000.00
$4,000.00
$4,000.00
$3,000.00
Transcribed Image Text:Year 2 3 4 O 1 O $4.404.83 O $4.162.90 O $3.811.27 O $4.280.07 O $3,622.02 Assuming that the relevant cost of capital for both projects is 10%, you should be able to determine the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that the firm has capital rationing, but knows that its true reinvestment rate is 21%, while its cost of capital is 10 percent. Given this information, determine the modified net present value (MNPV) for Project A. Project A Cash Flow $10,000 00 $3.000.00 $ 4.000.00 $5,000.00 $3,000.00 Project B Cash Flow $11,000.00 $5.000.00 $4,000.00 $4,000.00 $3,000.00
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