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Analysis of Financial Management and Investments

Read the chapter appendix before you attempt to answer this problem. You will be required to utilize your skills in the chapter appendix when you answer this question. A company is considering the following investment opportunities.
Investment

Investment A B C

Initial Cost ($millions) $5.5 $3.0 $2.0

Expected Life 10 yrs 10 yrs 10 yrs

NPR @15% $340,000 $300,000 $200,00

IRR 20% 30% 40%

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

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

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

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

Since the firm can raise large amount of money and the projects are independent, we need to look at the NPV. The cost of capital is 15% and if the ...

Solution Summary

This solution of 275 words provides recommendations on what company should undertake when deal with annual cost, investments and fixed capital budget.

$2.19