16. Identify the decision rule for accepting or rejecting investment projects using NPV.
17. Give an example of mutually exclusive investment projects and explain how they affect the capital budgeting decision.
See attached file for full problem description.© BrainMass Inc. brainmass.com June 3, 2020, 6:08 pm ad1c9bdddf
A NPV OF INVESTMENT USING FIRM'S COST OF CAPITAL
YEAR INVESTMENT A INVESTMENT B
0 -1000 -1000
1 600 700
2 600 600
3 600 500
4 600 400
COST OF CAPITAL 12%
NPV $822.41 $713.41
PREFERRED INVESTMENT WILL BE THE PROJECT HAVING HIGHER NPV I.e PROJECT A
A NPV OF INVESTMENT USING CERTAINTY ...
This explains the Net Present Value technique of appraising the projects through a case study. This also explains how to calculate NPV, Interest coverage ratio and Fixed payment coverage ratio.