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Investments Quick and Slow cost $1,000 each, are mutually exclusive, and have the following cash flows. The firm's cost of capital is 7 percent.
Investments Quick and Slow cost $1,000 each, are mutually exclusive, and have the following cash flows. The firm's cost of capital is 7 percent. Cash Inflows S Q Year 1 2 $1,100 $309 309 3 309 4 309 a. According to the net present value method of capital budgeting, which investment(s) should the firm make? Use Appendix B and Appendix D to answer the question. Use a minus sign to enter negative values, if any. Round your answers to the nearest cent. NPV (Investment Quick): $ NPV (Investment Slow): $ The firm should make investment(s) Slow b. According to the internal rate of return method of capital budgeting, which investment(s) should the firm make? Use Appendix D to answer the question. Round your answers to the nearest whole number. IRR (Investment Quick): % IRR (Investment Slow): % The firm should make investment(s) -Select- c. If Q is chosen, the $1,100 can be reinvested and earn 8 percent. Does this information alter your conclusions concerning investing in Q and S? To answer, assume that S's cash flows can be reinvested at its internal rate of return. Use the rounded internal rate of return from part b. Use Appendix A and Appendix C to answer the question. Round your answers to the nearest cent. Terminal value (Investment Quick): $ Terminal value (Investment Slow): $ The firm should make investment(s) -Select- Would your answer be different if S's cash flows were reinvested at the cost of capital (7 percent)? Use Appendix C to answer the question. Round your answer to the nearest cent. Terminal value (Investment Slow): $
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