Question
Consider the projects below. Assuming these projects are mutually exclusive , the firm has no other investment opportunities except fairly priced financial securities, and WACC
Consider the projects below. Assuming these projects are mutually exclusive, the firm has no other investment opportunities except fairly priced financial securities, and WACC = 12%. Which, if either, project should it invest in and why?
0 | 1 | 2 | 3 | |
Project 1: | ||||
Capital Spending | ($1,050,000) | |||
FCF | $500,000 | $500,000 | $500,000 | |
NPV | ||||
IRR | 20.2% | |||
Project 2: | ||||
Capital Spending | ($500,000) | |||
FCF | $450,000 | $250,000 | $0 | |
NPV | ||||
IRR | 28.8% |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To determine which project to invest in we can use the Net Present Value NPV and Internal Rate of Return IRR criteria Both criteria are commonly used in capital budgeting decisions 1 NPV Criterion Pro...
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Step: 2
Step: 3
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Smith and Roberson Business Law
Authors: Richard A. Mann, Barry S. Roberts
15th Edition
1285141903, 1285141903, 9781285141909, 978-0538473637
