Question
Your company, WiseGuy Inc., is consider taking on one of two projects. The risks of the projects are the similar and the associated cost of
Your company, WiseGuy Inc., is consider taking on one of two projects. The risks of the projects are the similar and the associated cost of capital is 3%. The cashflows from the projects are provided below.
| Time | Project A | Project B |
| 0 | -12,000 | -18,000 |
| 1 | 6,000 | 8,500 |
| 2 | 6,000 | 8,500 |
| 3 | 6,000 | 8,500 |
a. Suppose the firm has to recoup any investment in 2 years. Which decision rule will the firm use and which project will the firm undertake?
b. Assuming there is no time constraint and the firm is only interested in increasing shareholder value, which decision rule will the firm use and which project will the firm undertake?
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Personal Finance Turning Money into Wealth
Authors: Arthur J. Keown
7th edition
978-0133856507, 013385650X, 133856437, 978-0133856439
