Unit4-corporatefinance-elizabethingram

# Unit4-corporatefinance-elizabethingram - Chapter 5 1...

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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 _1,000 _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? NPV a) -90.91 b) payback A= 1year, payback b = 2years, payback c= 4years A+b required return period 0 1 2 3 4 10% cash flow (2,000) 1,000 4,000 1,000 1,000 net present value= 4,044.73 c=39.47 8) Borghia Pharmaceuticals has \$1 million allocated for capital expenditures. Which of the following 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. Project Investment (\$ thousands NPV (\$ thousands) IRR(%) 1 300 66 17.2 2 200 -4 10.7 3 250 43 16.6 4 100 14 12.1

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Unit4-corporatefinance-elizabethingram - Chapter 5 1...

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