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Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 13%. The cash flows for
Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 13%. The cash flows for each project are shown in the following table.
| Project A | Project B | |||||
| -$130,000.00 | -$85,000.00 | |||||
| Initial Investment (CF0) | ||||||
| Year (t) | Cash Inflows (CFt) | |||||
| 1 | $25,000 | $40,000 | ||||
| 2 | $35,000 | $35,000 | ||||
| 3 | $45,000 | $30,000 | ||||
| 4 | $50,000 | $10,000 | ||||
| 5 | $55,000 | $5,000 | ||||
| Question A | ||
| Calculate each project's payback period |
| Question B | ||
| If the return on the market portfolio increased by 12%, what change would you expect in return for each stock? |
| Question C | ||
| If the return on the market portfolio decreased by 5%, what change would you expect in return for each stock? |
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Restaurant Financial Management
Authors: Hyung-il Jung
1st Edition
1774631431, 978-1774631430
