Question
A firm has identified several investment opportunities, with respective cash flows provided in a table below. The projects are not mutually exclusive and each of
A firm has identified several investment opportunities, with respective cash flows provided in a table below. The projects are not mutually exclusive and each of these projects is infinitely divisible (i.e., the firm can invest into a fraction of the project, receiving corresponding fractional gain). The company has only $470 in its cash account to invest, and it uses a 10% discount rate.
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| Year 0 | Year 1 | Year 2 |
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| Project A | -220 | 160 | 120 |
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| Project B | -310 | 190 | 210 |
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| Project C | -160 | 110 | 115 |
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| Project D | -250 | 180 | 180 |
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Which of these projects should the firm undertake? ______________________
What is the total value that is created? ______________________
Now assume that the projects are indivisible (that is, discreet).
Which of these projects should the firm undertake? ______________________
What is the total value that is created? ______________________
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Financial Management For Decision Making
Authors: Harold Jr. Bierman, Seymour Smidt
1st Edition
1587982129, 9781587982125
