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A firm has three investment opportunities: Time: 0 1 2 3 Cash Flow Project A - 3 0 0 2 0 4 5 Project B
A firm has three investment opportunities:
Time:
Cash Flow
Project A
Project B
Project C
The firm has $ in retained earnings to invest, but the firm is capital constrained and cannot
borrow any additional funds this year. Note that the firm cannot complete part of a project, and
it cannot pursue any project more than once, but it could pursue multiple projects. Due to the
different levels of risk, each of the two projects has a different cost of capital: the cost of capital
for projects A B and C are and respectively. What should the firm do Explain.
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