Cash flows associated with various facilities

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Reference no: EM131959650

1. Gomi Waste Disposal is planning to sell its Columbus, Memphis, and Detroit facilities. The firm expects to sell each of the three facilities for the same, positive cash flow of W dollars. The firm expects to sell its Memphis facility in Z years, its Detroit facility in Z years, and its Columbus facility in T years. The cost of capital for the Memphis facility is Q percent, the cost of capital for the Columbus facility is Q percent, and the cost of capital for the Detroit facility is P percent. We know that T > Z > 0 and Q > P > 0. The cash flows from the sales are the only cash flows associated with the various facilities. Based on the information in the preceding paragraph, which one of the following assertions is true?

A. The Detroit facility is the most valuable of the 3 facilities

B. None of the other assertions is true

C. Two of the three facilities have equal value and those two facilities are more valuable than the third facility or all three facilities have the same value

D. The Columbus facility is the most valuable of the 3 facilities

E. The Memphis facility is the most valuable of the 3 facilities

2. Litchfield Design is planning to sell its San Francisco, Chicago, and Miami stores. The firm expects to sell its Chicago store for a cash flow of E dollars, its Miami store for a cash flow of E dollars, and its San Francisco store for a cash flow of L dollars. The firm expects to sell its Chicago store in P years, its Miami store in V years, and its San Francisco store in V years. The cost of capital for all three stores is R. We know that L > E > 0, P > V > 0, and R > 0. The cash flows from the sales are the only cash flows associated with the various stores. Based on the information in the preceding paragraph, which one of the following assertions is true?

A. The San Francisco store is the most valuable of the 3 stores

B. Two of the three stores have equal value and those two stores are more valuable than the third store or all three stores have the same value

C. None of the other assertions is true

D. The Miami store is the most valuable of the 3 stores

E. The Chicago store is the most valuable of the 3 stores

Please answer both of these questions

Reference no: EM131959650

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