Question
Project C and project D are mutually exclusive projects with conventional cashflows. The net present values (NPV) of the projects are calculated at the cost
Project C and project D are mutually exclusive projects with conventional cashflows. The net present values (NPV) of the projects are calculated at the cost of capital of 10% and 15% and provided below.
Cost of capital | NPV (Project C) | NPV (Project D) |
10% | $109,366 | $120,756 |
15% | $57,709 | $50,837 |
Project C has an internal rate of return (IRR) of 22%. Project D has an internal rate of return (IRR) of 19%.
Three companies are interested in investing in the projects. The cost of capital of each company is given below:
Company | Cost of capital |
Red | 8% |
Green | 12% |
Blue | 17% |
Provide your advice to each of the companies.
Company Red Should:
Company Green Should:
Company Blue Should:
Accept Project C only
Accept Project D only
Accept Both Projects
Accept Neither Projects
Require more information for decision-making
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started