Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Tw- units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are shown here. Kim's WACC is 6%. 0 2 3 4 5 HCC LCC -$590,000 -$55,000 -$55,000 -$55,000 -$55,000 -$55,000 -$100,000 -$175,000 -$175,000 -$175,000 -$175,000 -$175,000 a. Which unit would you recommend? 1. Since all of the cash flows are negative, the NPV's cannot be calculated and an alternative method must be employed. II. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any project that has a negative NPV. III. Since we are examining costs, the unit chosen would be the one that had the lower NPV of costs. Since HCC's NPV of costs is lower than LCC's, HOC would be IV. Since all of the cash flows are negative, the IRR's will be negative and we do not accept any project that has a negative IRR. V. Since we are examining costs, the unit chosen would be the one that had the lower NPV of costs. Since LCC's NPV of costs is lower than HCC's, LCC would be chosen -Select- b. If Kim's controller wanted to know the IRR of the two projects, what would you tell him? 1. The IRR cannot be calculated because the cash flows are in the form of an annuity 11. The IRR of each project will be positive at a lower WACC. III. There are multiple IRR's for each project. IV. The IRR of each project is negative and therefore not useful for decision-making, V. The cannot be calculated because the cash flows are at one sign. A change of sign would be needed in order to calculate the TRR. -Select- c. If the WACC rose to 12% would this affect your recommendation? I. When the WACC increases to 12, the NPV of costs are now lower for LCC than HCC 11. When the WACC Increases to 12, the NPV or costs are now lower for HCC than LCC II. When the WACC increases to 12%, the IRR for LCC is greater than the IRR for HCC, LCC would be chosen TV. When the WACC increases to 12%, the IRR for HCC is greater than the IRR for LCC, HCC would be chosen V. Since all of the cash nows are negative, the NPV Will be negative and we do not accept any project that has a negative NY ols Attempts: Keep the Highest /1 1. Problem 11.01 Click here to read the eBook: Net Present Value (NPV) NPV Project L costs $40,000, its expected cash inflows are $11,000 per year for 7 years, and its WACC is 14%. What is the project's NPV? Round your answer to the nearest ont. Do not round your intermediate calculations