Question
The Hustings Company is evaluating two independent investment projects. Project A is a new process to manufacture methane. Project A requires an investment of $1,000
The Hustings Company is evaluating two independent investment projects. Project A is a new process to manufacture methane. Project A requires an investment of $1,000 and produces $600 per year for two years. Project B involves an innovative means of transporting methane at low cost. This project also requires and investment of $l,000, but generates $620 per year for two years. The risk free rate is 6% and the market risk premium is 8.5%. What are the NPVs of these projects, and should Hustings accept or reject them? The following table provides additional information about the two projects and Hustings Company.
Project Beta IRR(%)
A 0.8 13.07
B 1.2 15.62
Firm 1.0 14.50*
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