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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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