Xenex Inc., a supplier of hospital room disinfection systems, has a cost of capital of 12 percent.
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Xenex Inc., a supplier of hospital room disinfection systems, has a cost of capital of 12 percent. | ||||||||||
To fairly evaluate projects and adjust for risk, it adds or subtracts 2 percentage points to the discount rate. | ||||||||||
Currently, two mutually exclusive projects are under consideration. Both have a cost of $200,000 and will last four years. | ||||||||||
Neither project is projected to generate positive cash flows and thus both are evaluated on the basis of costs. | ||||||||||
However, Project A is judged to be a riskier-than-average project but Project B is determined to a lower than average risk investment. | ||||||||||
In which project should Xenex invest its capital? | ||||||||||
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0071051606
8th Canadian Edition
Authors: Stephen A. Ross, Randolph W. Westerfield
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