A firm has two possible investments with the following cash inflows Each investment costs $480, and the cost of capital is ten percent a Based only on visual inspection, which investment is to be preferred and why b Based on each investments net present value , which investment(s) should the firm m...

a Both investments generate 600 in total cash flows but the timing of the cash flows favors investme ...

A firm has two possible investments with the following cash inflows. Each investment costs $480, and the

Question:

A firm has two possible investments with the following cash inflows. Each investment costs $480, and the is ten percent.

Cash Inflows Year 1 $200 $300 200 2 200 100 200

a. Based only on visual inspection, which investment is to be preferred and why?

b. Based on each investment€™s net present value, which investment(s) should the firm make?

c. Based on each investment€™s internal rate of return, which investment(s) should the firm make? Is this the same answer you obtained in part b?

d. If the cost of capital were to increase to 14 percent, which investment(s) should the firm make?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...

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