Kim the most 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. Two units are available, NC and to for high and low capital costa, respectively), HCC has a high capital cost but ratively low operating costs, while LCC has low capital cost but higher operating costs because it uses more electricity. The cost of the units are shown here's WACC HCC tcc $610,000 $50,000 -$30,000 - 150.000 -$50,000 -$50,000 -$120,000 $175,000 5175,000 $175.000 -$175,000 $175.000 a. Which unit would you recommend 1. Since all of the cash flows are negative, the NPV's will be negative and we do not any project that has a negative NPV. IL since all of the cash flows are negative, ther's will be negative and we do not accept any project that has a negative TRR III. Since we are examining costs, the unit chosen would be the one that had the lower of cost. Since Lee's of costs is lower than HCC's, LOC would be chosen IV. Since we o examining costs, the chosen would be the one that had the lower costs, ince HOC's NP of cost is lower than LCC'S, HOC would be cose V. Since all of the show a negative, the NP's cannot be calculated and an alternative method must be loved Select b. If Kim's controller wanted to know the trees of the two projects, what would you tell him? 1. There are multiple IRR's for each project 11. The IRR of each project is negative and therefore not used for decision making II. The Ink cannot be calculated because the cash flow are all conign. A change of sign would be needed in order to calculate the TRR IV. The IRR cannot be cakulated because the cash flows are in the form of an annuity V. The IRR of each project will be positive at a lower WACCI If the WACC rose to 10% would this affect your recommendation? 1. When the WACC Increases to 10%, te of costs are now lower for HC than cc II. When the WACC increases to 10th for LCC is greater than the tre for CC, LC would be chosen III. When the WACC increases to 104, then for HCC greater than it for CC, HCC would be chosen 16. Since all of the cash flows are negative, the NV's will be regative and we do not acceptare proiect that has negative When the WACC Increases to 104, the NPV of costs ww now lower for LCC than HCC Explain your answer and the reason this result occurred Thorson is that when you discount at Nigher rate your mating smaller thus inoroving the NTV 11. Meason is that win you scout at a highet ate you are making negative Father the improving the III. The reston is that when you discount the you are making negative char tus improving the IV. The restors that when you discount ac a haber role you are one of higher and his own the NPV The reason in that when you discunt at a higher rate you are making megative smerited this lower the