Problem 22-05

A firms cost of capital is 9 percent. The firm has three investments to choose among; the cash flows of each are as follows:

	Cash Inflows
Year		A			B			C
1		$	533					$	1,568
2			533
3			533
4					$	2,050

Each investment requires a $1,400 cash outlay, and investments B and C are mutually exclusive. Use Appendix A, Appendix B and Appendix D to answer the questions. Assume that the investments are not mutually exclusive and there are no budget restrictions.

1. Which investment(s) should the firm make according to the net present values? Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar.

   A: $

   B: $

   C: $

   The firm should make investment(s) -Select-ABCA and BA and CItem 4 .

2. Which investment(s) should the firm make according to the internal rates of return? Round your answers to the nearest whole number.

   A: %

   B: %

   C: %

   The firm should make investment(s) -Select-ABCA and BA and CItem 8 .

3. If all funds from investment C are reinvested at 10 percent, which investment(s) should the firm make? Round your answer to the nearest dollar.

   Terminal value of investment C: $

   The firm should make investment(s) -Select-ABCA and BA and CItem 10 .

   Would your answer be different if the reinvestment rate were 9 percent? Round your answer to the nearest dollar.

   Terminal value of investment C: $

   The firm should make investment(s) -Select-ABCA and BA and CItem 12 .