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The Xia Corporation is a company whose sole assets are $100,000 in cash and three projects that will undertake. The projects are risk-free and
The Xia Corporation is a company whose sole assets are $100,000 in cash and three projects that will undertake. The projects are risk-free and have the following cash flows: (Click on the fol Cash Flow Today Cash Flow in One Year - $24,000 - $5,000 $34,000 $25,000 $84,000 - $60,000 Project A B C Xia plans to invest any unused cash today at the risk-free interest rate of 11.6%. 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).
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a To find the Net Present Value NPV of each project we use the formula NPV sumt0T CFt1 rt where CFt ...Get Instant Access to Expert-Tailored Solutions
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