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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