A firm’s cost of capital is 12 percent. The firm has three investments to choose among; the cash flows of each are as follows: Cash Inflows A B C Year 1 $395 — $1,241 2 395 — — 3 395 — — 4 — $1,749 — Each investment requires a $1,000 cash outlay, and investments B and C are mutually exclusive. a. Which investment(s) should the firm make according to the net present values? Why? b. Which investment(s) should the firm make according to the internal rates of return? Why? c. If all funds are reinvested at 15 percent, which investment(s) should the firm make? Would your answer be different if the reinvestment rate were 12 percent? A risky $400,000 investment is expected to generate the following cash flows: Year 1 2 3 4 $145,300 $175,445 $156,788 $145,000 A. If the firm’s cost of capital is 10 percent, should the investment be made? B. An alternative use for the $400,000 is a four-year U.S. Treasury bond that pays $28,000 annually and repays the $400,000 at maturity. Management believes that the cash inflows from the risky investment are equivalent to only 75 percent of the certain investment, which pays 7 percent. Does this information alter the decision in a? Finance Budget 25.00 Attach Files For This Project Warning: Attaching a file will overwrite the existing file Chat With Scholars Contact Ace Support Invite Scholars To Bid Click “Select” to assign work to scholar How to assign work to a scholar Select as Winner Scholar Level Rating Message Scholar Amount ($) Expected Completion (MST) Original Guarantee yeswriting Chat Now! Veteran Scholar out of 17 reviews 25.00 06/21/2014 12:00 am Y assignmentexpert96 Chat Now! Veteran Scholar out of 13 reviews 40.00 06/21/2014 12:00 am Y Get Ace Help Fast By Upgrading Project (Optional) Cancel Project Facebook Fan Page Announcements
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