Explain capital budgeting involves calculation of npv

Reference no: EM1312941

Explain Capital budgeting involves calculation of NPV and IRR

Cochran Corporation has a weighted average cost of capital of 11 percent for projects of average risk. Projects of below-average risk have a cost of capital of 9 percent, while projects of above-average risk have a cost of capital equal to 13 percent. Projects A and B are mutually exclusive, whereas all other projects are independent. None of the projects will be repeated. The following table summarizes the cash flows, internal rate of return (IRR), and risk of each of the projects.

Year (t) Project A Project B Project C Project D Project E
0 ($200,000) ($100,000) ($100,000) ($100,000) ($100,000)
1 66,000 30,000 30,000 30,000 40,000
2 66,000 30,000 30,000 30,000 25,000
3 66,000 40,000 30,000 40,000 30,000
4 66,000 40,000 40,000 50,000 35,000

Which projects will the firm select for investment?

Reference no: EM1312941

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