Question

A firm has the following investment alternatives. Each costs $13,000 and has the following cash inflows.
Investment A is considered to be typical of the firm’s investments. Investment B’s cash flows vary over time but are considered to be less certain. Investment C’s cash flows diminish over time but because most of the cash flows occur early in the investment’s life, they are considered to be more certain. The firm’s cost of capital is 10 percent, but the financial manager uses a hurdle rate of 8 percent for less-risky projects and 12 percent for riskier projects.
a. Based on the cost of capital, should any of the investments be made?
b. If the financial manager uses a risk-adjusted cost of capital, should any of the investments be made?
c. Would the answers to a and b be different if the three investments were mutually exclusive?


$1.99
Sales0
Views66
Comments0
  • CreatedMarch 19, 2015
  • Files Included
Post your question
5000