Question
A company is evaluating two independent projects for capital investment purposes. If the company has only...
A company is evaluating two independent projects for capital investment purposes. If the company has only $85 million to invest, and its required return is 10 percent by how much the company’s value will increase? All values are in millions. Project 1 Project 2 0 -50 -50 1 5 0 2 15 0 3 30 0 4 30 90
Homework Answers
Answer #1
NPV = Present Value of Cash Inflow - Present Value of Cash Outflow
Project 1
Present Value of Cash Inflow = 
= 
= $ 59.97
NPV = 59.97 - 50 = 9.97
Project 2
Present Value of Cash Inflow =
= 
= $ 61.47
NPV = 61.47 - 50 = $ 11.47
Project 2 should be selected. Value of Firm will increase by $ 11.47.
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