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. Simson and Simpson, Inc. with its WACC of 10% has two investment proposals with the following characteristics: ____________________________________________________________________________ PROJECT APROJECT B ___________________________________________________ Period ICO
. Simson and Simpson, Inc. with its WACC of 10% has two investment proposals with the following characteristics:
____________________________________________________________________________
PROJECT APROJECT B
___________________________________________________
Period ICO Cash Flows ICO Cash Flows
____________________________________________________________________________
0 $(9,000) -$(12,000) -
1$5,000 $5,000
2$4,000 $5,000
3$3,000 $8,000
____________________________________________________________________________
(A).Compute the internal rate of return for Projects A & B. (5)
(B).On a graph draw the net present value profiles for each project using 5 discount rates. (5)
(C).Identify the crossover point. What is the significance of this point? Which project should be accepted, why? (5)
(D).Explain the difference between incremental cost and opportunity cost. What are sunk costs and should we consider them when making capital budgeting decisions? Why
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