Question: a) A firm is considering two projects, A and B. Each project will last for 4 years. The projects are INDEPENDENT. The projected cash flows
a) A firm is considering two projects, A and B. Each project will last for 4 years. The projects are INDEPENDENT. The projected cash flows for each project are shown below:
| Year | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| Project A | -20.00 | 8.00 | 8.00 | 6.00 | 5.00 |
| Project B | -31.00 | 10.00 | 13.00 | 9.00 | 9.00 |
The cost of capital for the firm is 12.00%.
- What is the NPV for project A at the cost of capital?
-What is the NPV of project B at the cost of capital?
b)
A firm is considering two projects, A and B. Each project will last for 4 years. The projects are MUTUALLY EXCLUSIVE. The projected cash flows for each project are shown below:
| Year | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| Project A | -19.00 | 8.00 | 8.00 | 7.00 | 4.00 |
| Project B | -31.00 | 9.00 | 12.00 | 11.00 | 8.00 |
The cost of capital facing the firm is 6.00%.
-What is the NPV of project A at the cost of capital?
-What is the NPV of project B at the cost of capital?
-What is the IRR of project A?
-What is the IRR of project B?
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