Question

In: Finance

An analyst has collected the following data about two projects, each with a 12% required rate...

  1. An analyst has collected the following data about two projects, each with a 12% required rate of return.

Initial Cost Life
Cash Inflows

Project A

$15,000
5 years $5,000/year

Project B

$20,000
4 years $7,500/year

  1. (a) Calculate the Net Present Value of both projects.

  2. (b) If the projects are independent, which project(s) should the company accept?

  3. (c) If the projects are mutually exclusive, which project(s) should the company accept?

  4. (d) Calculate the Net Present Value for each project for alternative required rates of return from 0%, 1%, 2%,..., up to 20%.

  5. (e) Plot a chart of the Net Present Value of each project (y-axis) against the different required rates of return (x-axis). You should have two lines.

  6. (f) Where do these lines (NPV profiles) intercept?

Solutions

Expert Solution

jeff jeffy answered 1 year ago
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