A firm has a $100 million capital budget. It is considering two projects, each costing $100 million.
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A firm has a $100 million capital budget. It is considering two projects, each costing $100 million. Project A has an IRR of 20%; has an NPV of $9 million; and will be terminated after 1 year at a profit of $20 million, resulting in an immediate increase in EPS. Project B, which cannot be postponed, has an IRR of 30% and an NPV of $50 million. However, the firm’s short-run EPS will be reduced if it accepts Project B because no revenues will be generated for several years.
a. Should the short-run effects on EPS influence the choice between the two projects?
b. How might situations like this influence a firm’s decision to use payback?
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a In general the answer is no The objective of management should be ...View the full answer
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EDNE BECERA
I am a graduate of BS Chemical Engineering at STi-West Negros University way back 2006. After review for and passing the board exam, i started working for a Japanese plating company as a Quality Assurance In-charge, and alter on promoted to a vacant position in the Environment Department, where until now, I am working in that field. I really love teaching even when I was a college student, so I started doing part-time tutorial jobs for 2 high-school students. Eventually, when I started working, i still enjoy much of my extra hours with elementary and some high-school students, teaching them on match and science subjects.
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Related Book For 
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
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