Investments A and B are mutually exclusive and cost $2,000 each. The firm's cost of capital is 9%, and the investments' estimated cash inflows are $\begin{array} { c c c c }
& \text { cash inflow } & A & B \
\text { year } & & & \
1 & \$ 2,320 & \cdots \
2 & \cdots & \cdots \
3 & \cdots & \$ 2,810
\end{array}$
a. What investment(s) should the firm make according to net present value?
b. What investment(s) should the firm make according to internal rate of return?
c. If the firm can reinvest funds earned in year 1 at 10%, which investment(s) should the firm make?

Question

Investments A and B are mutually exclusive and cost $2,000 each. The firm's cost of capital is 9%, and the investments' estimated cash inflows are​ $\begin{array} { c c c c } 
& \text { cash inflow } & A & B \
\text { year } & & & \
1 & \$ 2,320 & \cdots \
2 & \cdots & \cdots \
3 & \cdots & \$ 2,810
\end{array}$
a. What investment(s) should the firm make according to net present value?
b. What investment(s) should the firm make according to internal rate of return?
c. If the firm can reinvest funds earned in year 1 at 10%, which investment(s) should the firm make?

Quizplus · Accepted Answer

The Answer of Investments A and B are mutually exclusive and cost $2,000 each. The firm's cost of capital is 9%, and the investments' estimated cash inflows are​ $\begin{array} { c c c c } 
& \text { cash inflow } & A & B \
\text { year } & & & \
1 & \$ 2,320 & \cdots \
2 & \cdots & \cdots \
3 & \cdots & \$ 2,810
\end{array}$
a. What investment(s) should the firm make according to net present value?
b. What investment(s) should the firm make according to internal rate of return?
c. If the firm can reinvest funds earned in year 1 at 10%, which investment(s) should the firm make?

Investments a and B Are Mutually Exclusive and Cost $2,000