Which should company undertake

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Assignment

1. This problem test your understanding of the chapter appendix. A company is considering the following investments opportunities.

Investment                        A                 B                     C
Initial cost ($ millions)        5.5                3.0                   2.0
Expected life                     10 yrs            10 yrs              10yrs
NPV @ 15%                      $340,000       $300,000         $200,000
IRR                                  20%              30%                 40%

a. If the company can raise large amounts of money at an annual cost of 15 percent, and if the investments are independent of one another, which should it undertake?

b. If the company can raise large amounts of money at an annual cost of 15 percent, and if the investments are mutually exclusive, which should it undertake?

c. Considering only these three investments, if the company has a fixed capital budget of $5.5 million, and if the investments are independent of one another, which should it undertake?

Reference no: EM131525220

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