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Unformatted text preview: Problem #7 A firm has two $1,000, mutually exclusive investment alternatives with the following cash inflows. The cost of capital is 6 percent. Cash Inflow Year A B 1 $175 $1,100 2 $1753 $1754 $1755 $1756 $1757 $1758 $175a. What is the internal rate of return on each investment? Investment A 8.2% Investment B 10% Which investment should the firm make? Based on the IRR, Investment B b. What is the net present value of each investment? Investment A  $87 Investment B  $38 Which investment should the firm make? Investment A has the higher NPV, so go with Investment A. c. If the cash inflows can be reinvested at 8 percent, which investment should be made? Investment A  $87 Investment B  $183 Investment B has the higher NPV, so go with Investment B....
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 Spring '11
 Crisonino
 Finance, Cost Of Capital, Net Present Value, 10%, 8.2%, $175, $38, $183

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