Question
Acme Mfg is considering two projects, A & B, with cash flows as shown below: Period CFA CFB 0 -100000 1 20000 60000 2 20000
Acme Mfg is considering two projects, A & B, with cash flows as shown below:
| Period | CFA | CFB |
| 0 | -100000 | |
| 1 | 20000 | 60000 |
| 2 | 20000 | 25000 |
| 3 | 20000 | 25000 |
| 4 | 20000 | 25000 |
The opportunity cost of capital for A is 14 percent. The opportunity cost of capital for B is 10 percent.
QUESTIONS: (15 Marks)
a. Calculate the NPV for each project. ?
b. Calculate the IRR for each project. ?
c. Which project(s) should be accepted in each of the following situations:?
(1) The projects are mutually exclusive and there is no capital constraint.
(2) The projects are independent and there is no capital constraint.
d. Explain why the cost of capital for A might be higher than for B. ?
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International Financial Management
Authors: Geert Bekaert, Robert J. Hodrick
2nd edition
013299755X, 132162768, 9780132997553, 978-0132162760
