A firm has a capital budget of $100 which must be spent on one of two...

A firm has a capital budget of $100 which must be spent on one of two projects, which any unspent balance being placed in a bank deposit earning 15%. Project A involves a present outlay of $100 yields $321.76 after 5 years. Project B involves a present outlay of $40 yields $92 after one year. Calculate:

i. the IRR of each project

ii. the B/C ratio of each project, using a 15% discount rate

What are the project rankings on the basis of these investments decision-rules? Suppose that if project B is undertaken its benefit can be reinvested at 17% what project should the firm choose? Show your calculations

Expert Solution

jeff jeffy answered 1 year ago

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