A firm's cost of capital is 12 percent. The firm has three investments to

choose among; the cash flows of each are as follows:

Cash Inflows

A B C

Year

1 $395 -- $1,241

2 395 -- --

3 395 -- --

4 -- $1,749 --

Each investment requires a $1,000 cash outlay, and investments B and C are

mutually exclusive.

a. Which investment(s) should the firm make according to the net

present values? Why?

b. Which investment(s) should the firm make according to the internal

rates of return? Why?

c. If all funds are reinvested at 15 percent, which investment(s) should

the firm make? Would your answer be different if the reinvestment rate

were 12 percent?