Question

In: Finance

11.After you have graduated from the School of Business at Macau University of Science and Technology,...

11.After you have graduated from the School of Business at Macau University of Science and Technology, you are dedicated to establish your own start-up business. You have identified two mutually independent business projects with estimated cash flows as listed below. In the same industry and with similar business risks, both projects need the same amount of initial investment. These two projects are mutually exclusive, because you are subject to time constraint and financial budgets. You can take loans from commercial banks and the cost of capital is about 10%.
Year A B
0 -1000 -1000
1 200 600
2 200 558
3 200
4 200
5 600

On the basis of the information provided above, how will you make your investment decision?
A.Invest in Project A
B.Invest in Project B
C.Invest in Project A and Project B simultaneously
D.Either one is good decision of start-up investment.
E.None of above.

Solutions

Expert Solution

Solution:-

To Calculate NPV of the Project-

As NPV of both Projects are greater than zero. NPV is acceptable when NPV of project is greater than or equal to zero. So choose Both Projects.

The Correct Answer is Point C i.e. Invest in Project A and Project B simultaneously.

jeff jeffy answered 1 year ago
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