Question
Xenex Inc., a supplier of hospital room disinfection systems, has a cost of capital of 12 percent. To fairly evaluate projects and adjust for risk,
Xenex Inc., a supplier of hospital room disinfection systems, has a cost of capital of 12 percent. To fairly evaluate projects and adjust for risk, it adds or subtracts 2 percentage points to the discount rate. Currently, two mutually exclusive projects are under consideration. Both have a cost of $200,000 and will last four years. Neither project is projected to generate positive cash flows and thus both are evaluated on the basis of costs. However, Project A is judged to be a riskier-than-average project but Project B is determined to a lower than average risk investment. In which project should Xenex invest its capital? You must show all Excel work and formulas.
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