Solve the questions 12 to 16

IV. Investment decision rules (7pts) The values are in thousands of euros The company plans to invest in a new project (project A). This project requires an initial investment of 1.000 and should generate the following cash flows for the next 4 years: Having enough equity capital, the company's manager decides not to use debt to finance its project. 12. What is the NPV of this project? Should the company launch the project? (1pt) 13. If the cost of capital is 33%, should the project be launched? (1pts) At 33% the NPV =24.95 so don't launch the project because the NPV is negative 14. What is the IRR of this project and what does it say about whether the project should be launched or not? ( 1pt) 14. What is the IRR of this project and what does it say about whether the project should be launched or not? (1pt) The financial health of the company is so good that it can go into debt and thus increase its financing plan up to 4,000 ( 1,000 of equity and 3,000 of debt). This is a good thing since two other projects are potentially interesting: projects B and C whose CF are presented in the table below. 15. What is the cost of capital in this case? Determine it (1pt) 15. What is the cost of capital in this case? Determine it (1pt) 16. In which project(s) must the company invest? Why? (Consider projects A,B and C and use the profitability index as the investment decision tool) (3pts) PI= profitability index =NPV/ Investment The company must invest first in project A since it has the higher profitability index (PI). In order to maximize the NPV, it should invest in Project B, but its resources are not enough to do so. Then, unless increasing its capital so that it can invest in project B, it must invest in project C