Use the following information about Company Y below tohelp answer problems 8-9.Today (T=0), Company...

Use the following information about Company Y below to help answer problems 8-9.

Today (T=0), Company Y is evaluating Project 1 and Project 2
Each project’s initial cash outlay and future cash flows are forecasted below
Management’s primary goal is to maximize firm value by maximizing NPV

CF0 CF1 CF2 CF3 CF4 CF5 CF6 CF7 CF8

Project 1 -360 90 90 90 90 90 90 90 90

Project 2 -400 60 80 100 120 125 120 115 100

Assume the projects are mutually exclusive. Which of the following statements is most likely FALSE:

The projects have the same payback period
If the cost to finance either project is 12%, management should accept both projects
If the cost to finance either project is 15%, management should only accept Project 2
If the cost to finance either project is 18%, management should only accept Project 1
If the cost to finance either project is 21%, management should reject both Projects

Assume management has enough capital to accept both projects if desired. Which of the following statements is most likely TRUE:

The projects have the same payback period
If the cost to finance either project is 18%, management should accept both projects
If the cost to finance either project is 18%, management should only accept Project 2
If the cost to finance either project is 15%, management should reject both Projects
If the cost to finance either project is 12%, management should only accept Project 1

Solutions

Expert Solution

jeff jeffy answered 1 year ago

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