Question
a) A company is considering investing in 2 projects whose cash flows are as shown below: Year Cash flow in Shsm A B 0 (99)
a) A company is considering investing in 2 projects whose cash flows are as shown below:
Year | Cash flow in Shsm | |
| A | B |
0 | (99) | (140) |
1 | 50 | 80 |
2 | 70 | 60 |
3 | - | 30 |
The company's cost of capital is 10% none of the projects can be delayed or deferred
Required;-
I. Compute the NPVs of the two projects.
II. Which project (s) will you recommend if the projects were
i. Independent.
ii. Mutually exclusive
III. Assuming that the projects are mutually exclusive but the firm can reinvest indefinitely in each project. Which project would you recommend? Why?
b) Identify and explain three methods of handling risks in capital budgeting.
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