Question
ABC Company is experiencing hard capital rationing and will not be able to invest more than $1,000,000 this year. The firm is considering four mutually
ABC Company is experiencing hard capital rationing and will not be able to invest more than $1,000,000 this year. The firm is considering four mutually exclusive projects with the cash flows presented below. If the firms cost of capital is 8% per year, answer the following questions:
Period | CFs of Project A, $ | CFs of Project B, $ | CFs of Project C, $ | CFs of Project D, $ |
0 | -750,000 | -1,000,000 | -1,000,000 | -250,000 |
1 | 350,000 | 400,000 | 500,000 | 120,000 |
2 | 350,000 | 500,000 | 500,000 | 100,000 |
3 | 350,000 | 600,000 | 500,000 | 150,000 |
-Find each projects net present value and explain what the results suggest
-Find each projects profitability index and explain what the results suggest
-Find each projects internal rate of return and explain what the results suggest
-Given the above findings, which project(s) should the firm accept and why?
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