A Firm with the Following Investment Opportunities Has a Capital

question 14

Essay

A firm with the following investment opportunities has a capital budget of $10,000. According to the net present value technique, which investment(s) should the firm make if the firm's cost of capital is 10%?​ $\begin{array}{lccc} &&\text { Investment }\\& \text { A } & \text { B } & \text { C } \\\text { Cost } & \$ 10,000 & \$ 7,000 & \$ 3,000 \\\text { Cashinflow } & \$ 12.000 & \$ 8.600 & \$ 4.000\end{array}$
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Definitions:

Firm Commitment Underwriting

A method of securities underwriting where the underwriter agrees to buy the entire issue at a set price, assuming full financial risk by reselling the securities to the public.

Guaranteed Underwriting

A promise by an underwriter to purchase all unsold shares in an offering, ensuring that the issuing company raises the full capital.

Underwriter Risk

The risk that an underwriter of securities, such as stocks or bonds, faces when guaranteeing the sale of securities to the public.

Rights Offering

A method for companies to raise capital by offering new shares to existing shareholders under specific terms and usually at a discount.