Question
In: Finance
You are considering investing in a new project, Project B. Your firm has already invested in...
You are considering investing in a new project, Project B. Your firm has already invested in one project, Project A. If the cash flows to Project A will increase when you invest in Project B, should you include the entire cash flows to Project A in your valuation of Project B, include the new cash flows to Project A in the valuation of Project B, or exclude any cash flows to Project A in the valuation of Project B? Explain your answer.
Solutions
Expert Solution
As the Cash Flows of Project A are Increasing DIRECTLY because Project B is undertaken, those ADDITIONAL CASH FLOWS OF PROJECT A are ALSO the benefit received BECAUSE OF PROJECT B. Therefore, while Valuing Project B, ADDITIONAL Cash Flows of Project A should also be considered. All Cash Flows of Project A should NOT be considered because, the existing cash flows were occuring EVEN IF Project B is NOT undertaken.
jeff jeffy answered 2 years agoRelated Solutions
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. Suppose your firm is considering investing in a project with the cash flows shown as...
. Suppose your firm is considering investing in a
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IRR%=
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0
1
2
3
4
5
6
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$1,590
$1,390
$1,190
Use the NPV decision rule to evaluate this project.
(Negative amount should be indicated...
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