Question

2..

You own factory A and factory B. The next cash flow for each factory is expected in 1 year. Factory A has a cost of capital of 3.5 percent and is expected to produce annual cash flows of $19,300 forever. Factory B is worth $545,000 and is expected to produce annual cash flows of $19,900 forever. Which assertion is true?

a.

Factory A is more valuable than factory B and factory A is more risky than factory B

b.

Factory A is more valuable than factory B and factory B is more risky than factory A

c.

Factory B is more valuable than factory A and factory A is more risky than factory B

d.

Factory B is more valuable than factory A and factory B is more risky than factory A

e.

Factory A and factory B either have the same value, the same level of risk, or both the same value and level of risk.

Answer 1