IvanRivera6-MT480.CorporateFinance.Unit4-Project

IvanRivera6-MT480.CorporateFinance.Unit4-Project - MT480...

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MT480 – Corporate Finance, Prof. Weaver By Ivan Rivera CHAPTER 5 1. Consider the following projects: Visit us at www.mhhe.com/bma8e Cash Flows ($) Project C 0 C 1 C 2 C 3 C 4 C 5 A _1,000 _1,000 0 0 0 0 B _2,000 _1,000 _1,000 _4,000 _1,00 _1,000 C _3,000 _1,000 _1,000 0 _1,000 _1,000 a. If the opportunity cost of capital is 10 percent, which projects have a positive NPV? b. Calculate the payback period for each project. c. Which project(s) would a firm using the payback rule accept if the cutoff period is three years? 8. Borghia Pharmaceuticals has $1 million allocated for capital expenditures. Which of thefollowing projects should the company accept to stay within the $1 million budget? How much does the budget limit cost the company in terms of its market value? The opportunity cost of capital for each project is 11 percent. Visit us at www.mhhe.com/bma8e Project Investment NPV ($ thousands) ($ thousands) IRR (%) 1 300 66 17.2 2 200 –4 10.7 3 250 43 16.6 4 100 14 12.1 5 100 7 11.8 6 350 63 18.0 7 400 48 13.5
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IvanRivera6-MT480.CorporateFinance.Unit4-Project - MT480...

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