Question
Please answer both or none! Thank you ahead of time. Explain answer 4 a.Assume a company is evaluating three different investments. Investment A has an
Please answer both or none! Thank you ahead of time. Explain answer
4
a.Assume a company is evaluating three different investments. Investment A has an NPV of $0.00. Investment B has a positive NPV of $2,000. Investment C has a negative NPV of ($1,000). Which of the following statements is most true?
Only B is worthy of the company's investment money, since the others fail to earn the minimum cost of capital. | |
A and B are worth investing in (though they should be carefully compared to each other and evaluated further),, but C should be avoided by the company, since it does not earn the minimum cost of capital. | |
Only A should be invested in, because its IRR = the cost of capital. | |
All three investments are worth investing in by the company (though they should be carefully compared to each other and evaluated further), since all three at least made the minimum cost of capital. b.For the following cash flows, calculate the NPV based on a cost of capital of 12%: Investment of $50,000 Year1: $16,000 Year2: $20,000 Year3: $5,000 Year 4: $29,000 |
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