ASSIGNMENT $2$

Professional Assignment $1-$ CLO $1,$ CLO $2,$ CLO $5,$ CLO $6$

Consider the cash flows for the following three projects: A$,$ B$,$ and C$.$

a$.$ If the opportunity cost of capital is $11\%,$ and you have unlimited access to the capital,

which one$($s$)$ would you accept? Why did you answer the way you did? Would your

response change if the cost of capital is $16\%?$ Why or why not?

b$.$ Suppose that you have limited access to the capital and you need to choose only one

project. Which one would you choose and why? The discount rate is still $11\%.$

c$.$ What is the payback period of each project? Please analyze if$,$ in general, a decision

based on payback is consistent with a decision based on NPV$.$

d$.$ What are the internal rates of return $($IRR$)$ on the three projects? Does the IRR rule in

this case give the same decision as NPV$?$ How do you know?

e$.$ If the opportunity cost of capital is $11\%,$ what is the profitability index for each

project? Please analyze if$,$ in general, decisions based on profitability index are

consistent with decisions based on NPV$.$

f$.$ What is the most generally accepted measure to choose between the projects? Please

justify your answer.