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Unformatted text preview: $125 $100 $145 $180 NPV $50.00 $75 $80 $105 Payback 2.25 4.5 2 4.1 IRR 16.00% 23.25% 17.45% 15.75% D. Suppose that firm can invest in any good project without constraint. Which project provides the greatest increase in shareholder wealth? E. If project liquidity is the MAIN concern of the manager, which project should be selected? F. Suppose that the firm is budget constrained. How would you rank the projects for investment? G. Erwin Enterprises has 10 million shares outstanding with a current market price of $10 per share. There is one investment available to Erwin, and its cash flows are provided below. Erwin has a cost of capital of 10 percent. Given this information, determine the impact on Erwins stock price and firm value if capital markets fully reflect the value of undertaking the project. Initial cash outflow = $15,000,000 Year Cash Inflow 1 $2,000,000 2 $4,000,000 3 $5,000,000 4 $6,000,000 5 $7,000,000 6 $1,000,000 The new price of Erwin stock will be:...
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- Spring '08