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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
A textile company has $ 20,00,000.00 available for investment.It has evaluated its options and has found that only four investments (W,X,Y & Z) have positive ner present values.All these investments are entirely independent of one other.However,they have an equal life period of 5 years.The risk free interest rate is 5% per anum.The cost of capital to the company is 10%.The relevant data for the selected investments are :
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QUESTION :
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A textile company has $ 20,00,000.00 available for investment.It has evaluated its options and has found that only four investments (W,X,Y & Z) have positive ner present values.All these investments are entirely independent of one other.However,they have an equal life period of 5 years.The risk free interest rate is 5% per anum.The cost of capital to the company is 10%.The relevant data for the selected investments are :
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INVESTMENTÂ Â Â Â Â Â INITIAL OUTLAYÂ Â Â Â Â Â Â PRESENT VALUE OF FUTURE CASH FLOWS
WÂ Â Â Â Â Â Â Â Â Â Â Â Â Â 800000.00Â Â Â Â Â Â Â Â Â Â Â Â 1000000.00
XÂ Â Â Â Â Â Â Â Â Â Â Â Â Â 600000.00Â Â Â Â Â Â Â Â Â Â Â Â 1000000.00
YÂ Â Â Â Â Â Â Â Â Â Â Â Â Â 700000.00Â Â Â Â Â Â Â Â Â Â Â Â 1140000.00
ZÂ Â Â Â Â Â Â Â Â Â Â Â Â Â 600000.00Â Â Â Â Â Â Â Â Â Â Â Â 1200000.00
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Which investments should the firm adopt? Would your be different if the present value of future cash flows of project W were $ 1250000.00 instead of $ 1000000.00
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