Question
Blue Eagle Recycling has a weighted-average cost of capital of 7.27 percent and is evaluating two projects: A and B. Project A involves an initial
Blue Eagle Recycling has a weighted-average cost of capital of 7.27 percent and is evaluating two projects: A and B. Project A involves an initial investment of 5,062 dollars and an expected cash flow of 7,745 dollars in 8 years. Project A is considered more risky than an average-risk project at Blue Eagle Recycling, such that the appropriate discount rate for it is 1.1 percentage points different than the discount rate used for an average-risk project at Blue Eagle Recycling. The internal rate of return for project A is 5.46 percent. Project B involves an initial investment of 5,615 dollars and an expected cash flow of 7,861 dollars in 9 years. Project B is considered less risky than an average-risk project at Blue Eagle Recycling, such that the appropriate discount rate for it is 0.95 percentage points different than the discount rate used for an average-risk project at Blue Eagle Recycling. The internal rate of return for project B is 3.81 percent. What is X if X equals the NPV of project A plus the NPV of project B?
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