A firm has the following investment Cash inflows Year A B C 1 $1,100 $3,600 - 2 1,100 - - 3 1,100 - $4,562 Each investment costs$3,000; investment B and C mutually exclusive, and the firm's cost of capital is 8 percent. f. .If the firm could reinvest the $3,600 earned in year 1 from invest- ment B at 10 percent, what effect would that information have on your answer to part e? Would the answer be different if the rate were 14 percent? g. If the firm’s cost of capital had been 10 percent, what would be invest- ment A’s internal rate of return? h. The payback method of capital budgeting selects which investment? Why?

A firm has the following investment Cash inflows Year A B C 1 $1,100 $3,600 - 2 1,100 - - 3 1,100 - $4,562 Each investment costs$3,000; investment B and C mutually exclusive, and the firm's cost of capital is 8 percent. f. .If the firm could reinvest the $3,600 earned in year 1 from invest- ment B at 10 percent, what effect would that information have on your answer to part e? Would the answer be different if the rate were 14 percent? g. If the firm’s cost of capital had been 10 percent, what would be invest- ment A’s internal rate of return? h. The payback method of capital budgeting selects which investment? Why?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 4EB: Assume a company is going to make an investment in a machine of $825,000 and the following are the...

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Assume a company is going to make an investment in a machine of $825,000 and the following are the cash flows that two different products would bring. Which of the two options would you choose based on the payback method?
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