Steif Corporation has two investment projects it is considering. Financial capital is scarce, so Steif wants to choose the project that promises the highest returns to the company and its shareholders. The company's weighted average cost of capital is 14%. The projected cash flows from both projects are given below.
Required:
a) Calculate the present value of each of the projects using the 14% weighted average cost of capital as the discount rate.
b) Which, if either, of the projects should the company choose? Why?

Question

Steif Corporation has two investment projects it is considering. Financial capital is scarce, so Steif wants to choose the project that promises the highest returns to the company and its shareholders. The company's weighted average cost of capital is 14%. The projected cash flows from both projects are given below.
  Required:
a) Calculate the present value of each of the projects using the 14% weighted average cost of capital as the discount rate.
b) Which, if either, of the projects should the company choose? Why?

Quizplus · Accepted Answer

The Answer of Steif Corporation has two investment projects it is considering. Financial capital is scarce, so Steif wants to choose the project that promises the highest returns to the company and its shareholders. The company's weighted average cost of capital is 14%. The projected cash flows from both projects are given below.
  Required:
a) Calculate the present value of each of the projects using the 14% weighted average cost of capital as the discount rate.
b) Which, if either, of the projects should the company choose? Why?

Steif Corporation Has Two Investment Projects It Is Considering