Suppose that Chino Material Systems Inc. sells a low-quality, short-life system. a. Assuming a 12 percent cost
Question:
Suppose that Chino Material Systems Inc. sells a low-quality, short-life system.
a. Assuming a 12 percent cost of capital, what are this project’s NPV and its IRR? Be sure to talk about (1) mutually exclusive versus independent projects, (2) conflicts between projects, and (3) the effect of the cost of capital on the existence of conflicts.
b. What conditions must exist with respect to timing of cash flows and project size for conflicts to arise?
c. Now consider the other alternative Chino Material Systems product that has large closeout costs at the end of its useful life. Assuming a 12 percent cost of capital, what are this project’s NPV, IRR, and MIRR?
Principles of Managerial Finance
ISBN: 978-1408271582
Arab World Edition
Authors: Lawrence J. Gitman, Chad J. Zutter, Wajeeh Elali, Amer Al Roubaix