Question
Uncle Z is considering two projects, A & B, with cash flows as shown below: period Cash Flow of Project A Project B 0 -90,000
Uncle Z is considering two projects, A & B, with cash flows as shown below:
period | Cash Flow of | |
Project A | Project B | |
0 | -90,000 | -150,000 |
1 | 30,000 | 72,000 |
2 | 30,000 | 35,000 |
3 | 30,000 | 40,000 |
4 | 30,000 | 25,000 |
a. Calculate discounted payback period, net present value and internal rate of return for each project using opportunity cost of capital 13 % & 9% for project A & B respectively.
b. Which project(s) should be accepted if :
(i) The projects are mutually exclusive and there is no capital constraint.
(ii) The projects are independent and there is no capital constraint.
(iii) The projects are independent and there is a total of $100,000 of financing for capital outlays in the coming period.
c. Why the cost of capital for A might be higher than for B. State possible reason(s)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started