Cash Inflows A B

Year 1 $300 $200

Year 2 $200 $200

Year 3 $100 $200

ch 22 3a A firm has two possible investments with the cash flows in the table on page 465. Each investment costs $480 and the cost of capital is 10%.

Based on a visual inspection only, which investment is preferred?

		neither are preferred, they are both equal in cash flows
		project A because you get cash faster
		project B because cash flows are even
		Project B because the 3rd year generates more money

ch 22 3b A firm has two possible investments with the cash flows in the table on page 465. Each investment costs $480 and the cost of capital is 10%.

Based on NPV, which investment(s) is preferred? (assume you can afford to buy both)

		both because they are positive $33 and $17 respectively
		project A because it has a higher NPV of $33
		neither because the NPV of both projects is negative
		project B because it has a lower NPV of $17

ch 22 3c A firm has two possible investments with the cash flows in the table on page 465. Each investment costs $480 and the cost of capital is 10%.

Based on IRR, which investment(s) is preferred? (assume you can afford to buy both)

neither because the IRR of both projects are less than the cost of capital

project B because it has a lower IRR of 12.04%

both because their IRRS exceed the cost of capital respectively of 14.68% and 12.04%

project A because it has a higher IRR rate of 14.68%

ch 22 3d A firm has two possible investments with the cash flows in the table on page 465. Each investment costs $480 and the cost of capital is 14%.

Based on NPV, which investment(s) is preferred? (assume you can afford to buy both)

		project B because it negative NPV of $15.80
		project A because it has a positive NPV of $4.60
		neither because the NPV of both projects is negative
		both because their NPV are positive $4.60 and $15.80