Question

2.Fairfax Paint is planning to sell its McLean, Springfield, and Falls Church stores in T years from today. The firm expects to sell its Springfield store for a cash flow of H dollars, its Falls Church store for a cash flow of H dollars, and its McLean store for a cash flow of M dollars. The cost of capital for the Falls Church store is W percent, the cost of capital for the Springfield store is Q percent, the cost of capital for the McLean store is Q percent, H > M > 0, Q > W > 0; and T > 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?

3.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 Columbus facility in Z years, its Memphis facility in Z years, and its Detroit facility in T years. The cost of capital for the Columbus facility is Q percent, the cost of capital for the Detroit facility is Q percent, and the cost of capital for the Memphis 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?  

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
		The Columbus facility is the most valuable of the 3 facilities
		The Memphis facility is the most valuable of the 3 facilities
		The Detroit facility is the most valuable of the 3 facilities
		None of the other assertions is true

Answer 1

2. Assertions for this point are not available for validation

3. None of the assertions is true because of the following explanation

Particulars	Columbus	Memphis	Detroit	Condition
Cash Flows ($)	W	W	W	W is same
Time ( yrs)	Z	Z	T	T>Z>0
cost of Capital (%)	Q	P	Q	Q>P>0
Assertion
I	False. None of the facility has similar all the three particulars same
II	False. Detroit has more tenure of cash flows than Columbus as T>Z, thus this assertion is untrue
III	False. Memphis has lower tenure of cash flows though its Cost of capital is also low than Detroit.
	Thus Detroit may have higher net cash flows than Memphis
IV	False. Detroit has more tenure of cash flows than Columbus as T>Z, but Memphis despite having
	lower cash flows period may have high NPV than Detroit due to lower cost of capital.
V	TRUE