The Xia Corporation is a company whose sole assets are $100,000 in cash and three projects that it will undertake. The projects are risk-free and have the following cash flows: (Click on the following icon in order to copy its contents into a spreadsheet.) Project Cash Flow Today Cash Flow in One Year A - $20.000 $31.000 B - $5,000 $28,000 $58,000 $85.000 Xia plans to invest any unused cash today at the risk-free interest rate of 10.8%. In one year, all cash will be paid to investors and the company will be shut down. a. What is the NPV of each project? Which projects should Xia undertake and how much cash should it retain? b. What is the total value of Xia's assets (projects and cash) today? c. What cash flows will the investors in Xia receive? Based on these cash flows, what is the value of Xia today? d. Suppose Xia pays any unused cash to investors today, rather than investing it. What are the cash flows to investors in this case? Based on these cash flows, what is the value of Xia today? e. Explain the relationship in your answers to parts (b), (c) and (d). a. What is the NPV of each project? The NPV of Project A is $ (Round to the nearest cent.) The NPV of Project Bis (Round to the nearest cent.) The NPV of Project is $. (Round to the nearest cent) Which projects should Xia undertake and how much cash should it retain? (Select all the correct choices.) O A. Projects B and Chave positive NPV, and Xia has enough cash, so Xia should take them. O B. Projects A and Chave positive NPV, and Xia has enough cash, so Xia should take them. OC. Projects A and B have positive NPV, and Xia has enough cash, so Xa should take them. OD. All projects have positive NPV and Xia has enough cash, so Xia should take all of them. b. What is the total value of Xia's assets (projects and cash) today? The total value of Xia's assets (projects and cash) today is $. (Round to the nearest cent.) c. What cash flows will the investors in Xia receive? ? The cash flows Xia will pay to investors in one year is $. (Round to the nearest cent.) Based on these cash flows, what is the value of Xia today? Based on these cash flows, the value of Xia today is $. (Round to the nearest cent) d. Suppose Xia pays any unused cash to investors today, rather than investing it. What are the cash flows to investors in this case? The amount of cash investors will receive today is S. (Round to the nearest cent.) The amount of cash investors will receive in one year is $. (Round to the nearest cent) Based on these cash flows, what is the value of Xia today? , The value of Xia today is $. (Round to the nearest cent.) e. Explain the relationship in your answers to parts (b), (c) and (d). (Select all the correct choices.) A. Results from (b), (c) and (d) are the same because all methods value Xia's assets today B. Whether Xia pays out cash now or invests it at the risk-free rate, investors get the same value today. , . OC. The point is that a firm can increase its value by more efficiently doing what investors can do by themselves and is the essence of the separation principle). D. The point is that a firm cannot increase its value by doing what investors can do by themselves (and is the essence of the separation principle)
