Question
Yellow Sand Banking has a weighted-average cost of capital of 7.08 percent and is evaluating two projects: A and B. Project A involves an initial
Yellow Sand Banking has a weighted-average cost of capital of 7.08 percent and is evaluating two projects: A and B. Project A involves an initial investment of 6,250 dollars and an expected cash flow of 10,313 dollars in 4 years. Project A is considered more risky than an average-risk project at Yellow Sand Banking, such that the appropriate discount rate for it is 1.18 percentage points different than the discount rate used for an average-risk project at Yellow Sand Banking. The internal rate of return for project A is 13.34 percent. Project B involves an initial investment of 4,750 dollars and an expected cash flow of 8,835 dollars in 9 years. Project B is considered less risky than an average-risk project at Yellow Sand Banking, such that the appropriate discount rate for it is 1.44 percentage points different than the discount rate used for an average-risk project at Yellow Sand Banking. The internal rate of return for project B is 7.14 percent. What is X if X equals the NPV of project A plus the NPV of project B?
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