Question
On May 11, 2021, the total market value of company Bella Limited is $40million dollars. In the beginning of the year, the company issued a
On May 11, 2021, the total market value of company "Bella Limited" is $40million dollars. In the beginning of the year, the company issued a ten-year bond with acoupon rate 12% that is currently trading at 1,125 dollars. The market ongoing rate ofinterest/discount rate was 8%. The CEO of the company is considering undertaking two solar projectsnamely, project "Lambda" that has a cost of $15,000 and is expected to produce benefits(e.g.,cashflows)of$5,000peryearforfiveyearsandproject"EPSILON"thatcosts $24,000and isexpected toproducecashflows of $6,500 peryear for fiveyears.
a.CalculatethetwoprojectsInternalRateofReturnand ProfitabilityIndices.
b.Whichprojectwouldbeselected,assumingthatareMutuallyExclusive,usingeachrankingmethod?
c.Discussindetailtheadvantagesanddisadvantagesofthe IRRcriterion.
d.Whichrankingcriterionisbetter IRRorNPV?Carefullyexplainyouranswer.
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
0130674842, 978-0130674845
