Question
Yellow Sand Food has a weighted-average cost of capital of 7 percent and is evaluating two projects: A and B.Project A involves an initial investment
Yellow Sand Food has a weighted-average cost of capital of 7 percent and is evaluating two projects: A and B.Project A involves an initial investment of 6,064 dollars and an expected cash flow of 10,794 dollars in 4 years.Project A is considered more risky than an average-risk project at Yellow Sand Food, such that the appropriate discount rate for it is 2.03 percentage points different than the discount rate used for an average-risk project at Yellow Sand Food.The internal rate of return for project A is 15.51 percent.Project B involves an initial investment of 5,641 dollars and an expected cash flow of 10,323 dollars in 7 years.Project B is considered less risky than an average-risk project at Yellow Sand Food, such that the appropriate discount rate for it is 1.61 percentage points different than the discount rate used for an average-risk project at Yellow Sand Food.The internal rate of return for project B is 9.02 percent.What is X if X equals the NPV of project A plus the NPV of project B?
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