Question
Project A and B are mutually exclusive projects.The cost of project A is N$570m at time zero whilst the project of project B is N$880m
Project A and B are mutually exclusive projects.The cost of project A is N$570m at time zero whilst the project of project B is N$880m at time zero. project A is expected to generate an annual cash flow of N$300m per year over 3 years from year 1 to year 3. project B is expected to generate an annual cash flow of N$270m per year over 6 years from year 1 to year 6. assume cash flows occur at the end of each year. the cost of capital is 14%. which project should the company invest in if there is an opportunity to reinvest in project A after three years at the same cost with an economic life of 3 years. which project would you select? indicate the NPV of project A(with the reinvestment in similar [project after 3 years) and NPV at project B. project A and project B are mutually exclusive. project A will cost N$600m whilst project B has an economic life of 6 YEARS. it is possible to reinvest in a new project A after 3 years with a similar economic life. which of the following statements is more likely not to be true:
- in three years, improvements in technology may mean that capability of the replacement for project A may include significant operating enhancements and may result in a lower cost of production and /or an improvement in product quality
- the lower cost of project A will mean a lower risk if future cash flows do not meet expectations
- investing in project A may mean exposure to a higher cost of replacement in 3 years time either to inflation or changes in currency rates
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