Kim inc. must install a new airecondeoning unit in ins main plant. Kin must instell one or the other of the units; otherwise, the highly srofitable plant would have to shut down. Twio un avalable, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while tCC has a low capital cost but higher operatin because it uses more eloctricity. The costs of the units are shown here. Kim's WaCC is .5,5%. 1. Since ve are examining costs, the unt chosen would be the one that had the lower NPV of costa. Since HCC's NDY of costs is lower than LCC's, HCC would be chosen. 11. Since we are examining costs, the unt chosen would be the one that had the lower NPV of costs. 5 ince LCC's NPV of costs is fower than HCC's, LCC would be chosen. 7i1. Since all of the cash flows are negadve, the Nor's cannot be calculated and an alternative method must be emplayed. IV, Since all of the cash flows are negative, the NPV's will be nogative and we do not accept any project that has a negative NPY V. 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 Ing. b. It Kim's contrdler wanted to know the .RRRs of the two projects, what would you tell him? 1. The IRR of each project is negative and therefore not useful for decison making. II. The tRR cannok be calculated becaune the cash flews are all one sign. A change of sign would be needed in order to calculate the inc: 1if. The tar cannot be calculated because the cash flows are in the form of an annuty; N. The tRA of each project will be positive at a lower WAce. V. There are multiple trR's for each project. C. If the WacC rose to 114 would this atfect vour recommendation? 1. When the WACC inbremes to 11%, the 1RR for HCC is qreater than the tha for 1CC; HCC woild be chosen. 11. Since all of the canh flows are negative, the NeV's will be negaive and we do not accept any project that has a negative NoV, Itt. Whien the WACC increasei to 11\%, the TPV of costs are now lower for iCCC than HCC. IV. When the WACC increases to 11%, the NDV of covts are now lower for BCC than LCC. W. When the WACC increases to 11%, the thg for ICC is greater than the IRR for HCC, ICC would be chosen. Why de you thank this resilt occurred? T. The reason is that whan you discount at a higher rote you ace making negative ofs higher this ingreving the NPV. II The reasion is that when you discount at a higher rate you are making negative cri higher and this lowers the NPV. iti. The reaton is that when you disceant at a higher rate you are making negative cfo smaller and this lowers the Npy TV. The reason is that whan you discount at a higher iate yoo are makng negative Crs smaller thus ingruving the NDY V. The reason is that when vou discount at a higher tase yev are making negatre cris higher thes ingroving the tade