• • A company operating in efficient capital markets can choose one of two mutually exclusive projects. Project A has an NPV of $20 million, lasts for 7 years, and can be financed entirely by a bank loan with an 8% interest rate. Project B has an NPV of $50 million, lasts for 10 years, and can be financed entirely by equity with a 15% cost of capital. a. Which project should the firm undertake? b. Assume now that A lasts for 10 years and B lasts for 7 years; all other details are unchanged. Which project should the firm undertake now?
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Answer rating: 100% (QA)

a To determine which project the firm should undertake we can compare the projects based on their Ne... View the full answer