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ABC Company is experiencing hard capital rationing and will not be able to invest more than...

ABC Company is experiencing hard capital rationing and will not be able to invest more than $1,000,000 this year. The firm is considering four mutually exclusive projects with the cash flows presented below. If the firm’s cost of capital is 8% per year, answer the following questions:

Period

CFs of Project A, $

CFs of Project B, $

CFs of Project C, $

CFs of Project D, $

0

-750,000

-1,000,000

-1,000,000

-250,000

1

350,000

400,000

500,000

120,000

2

350,000

500,000

500,000

100,000

3

350,000

600,000

500,000

150,000

-Find each project’s net present value and explain what the results suggest

-Find each project’s profitability index and explain what the results suggest

-Find each project’s internal rate of return and explain what the results suggest

-Given the above findings, which project(s) should the firm accept and why?

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Expert Solution

jeff jeffy answered 4 months ago
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