Question
Wilderness Adventures specializes in back-country tours and resort management. Travel Excitement specializes in making travel reservations and promoting vacation travel. Wilderness Adventures has an aftertax
Wilderness Adventures specializes in back-country tours and resort management. Travel Excitement specializes in making travel reservations and promoting vacation travel. Wilderness Adventures has an aftertax cost of capital of 13 percent and Travel Excitement has an aftertax cost of capital of 11 percent. Both firms are considering building wilderness campgrounds complete with man-made lakes and hiking trails. The estimated net present value of such a project is estimated at $87,000 at a discount rate of 11 percent and -$12,500 at a 13 percent discount rate. Which firm or firms, if either, should accept this project?
A. Both Wilderness Adventures and Travel Excitement
B. Travel Excitement Only
C. Cannot be determined with more information
D. Neither
E. Wilderness only.
I am thinking C because I need to know the required rate of return or each company to determine if the 11% rate is sufficient. If it is, they could accept the project because it is + but if it it near 13%, the NPV would be negative, thus rejecting the project?
Thoughts?
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