A Firm Has Two $1,000, Mutually Exclusive Investment Alternatives with the Following

question 63

Essay

A firm has two $1,000, mutually exclusive investment alternatives with the following cash inflows. The cost of capital is 6 percent.​
​ $\begin{array}{cc}\text { Year }&\text { Cash Inflow }\\&A&B\\1 & \$ 175 &\$1,100\\2 & 175&-- \\3 & 175 &--\\4 & 175&-- \\5 & 175&-- \\6 & 175&-- \\7 & 175 &--\\8 & 175&--\end{array}$
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a. What is the internal rate of return on each investment? Which investment should the firm make? f sales.
b. What is the net present value of each investment? Which investment should the firm make?
c. If the cash inflows can be reinvested at 8 percent, which investment should be made?

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