# Question: A firm has the following investment alternatives Each one lasts

A firm has the following investment alternatives. Each one lasts a year.

The firm’s cost of capital is 7 percent. A and B are mutually exclusive, and B and C are mutually exclusive.

a. What is the net present value of investment A? Investment B? Investment C?

b. What is the internal rate on investment A? Investment B? Investment C?

c. Which investment(s) should the firm make? Why?

d. If the firm had unlimited sources of funds, which investment(s) should it make? Why?

e. If there were another alternative, investment D, with an internal rate of return of 6 percent, would that alter your answer to part d? Why?

f. If the firm’s cost of capital rose to 10 percent, what effect would that have on investment A’s internal rate of return?

The firm’s cost of capital is 7 percent. A and B are mutually exclusive, and B and C are mutually exclusive.

a. What is the net present value of investment A? Investment B? Investment C?

b. What is the internal rate on investment A? Investment B? Investment C?

c. Which investment(s) should the firm make? Why?

d. If the firm had unlimited sources of funds, which investment(s) should it make? Why?

e. If there were another alternative, investment D, with an internal rate of return of 6 percent, would that alter your answer to part d? Why?

f. If the firm’s cost of capital rose to 10 percent, what effect would that have on investment A’s internal rate of return?

**View Solution:**## Answer to relevant Questions

A firm, whose cost of capital is 10 percent, may acquire equipment for $113,479 and rent it to someone for a period of five years. a. If the firm charges $36,290 annually to rent the equipment, what are the net present value ...A risky $400,000 investment is expected to generate the following cash flows: a. If the firm’s cost of capital is 10 percent, should the investment be made? b. An alternative use for the $400,000 is a four-year U.S. ...RRM, Inc. has the following balance sheet: Sales are currently $160,000, but management expects sales to rise to $200,000. The net profit margin is expected to be 10 percent, and the firm distributes 60 percent of its ...The following structure of interest rates is given: Term of Loan Interest Rate 1 year....... 3% 2 years....... 4% 5 years....... 6% 10 years....... 8% Your firm needs $2,000 to finance its assets. Three possible ...Firm X has sales of $5,000,000; $3,000,000 are for cash, but two customers who generate sales of $2,000,000 pay after 30 days. Management believes that sales will increase by 20 percent if all customers have 30 days to pay. ...Post your question