An investment company is considering between the following two capital investments. Project A requires an...
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An investment company is considering between the following two capital investments. Project A requires an immediate expenditure of $150,000 and will produce returns of $25,000 at the end of each of the first 10 years (the first return is produced at the end of the first year, and etc.). Project B requires an immediate expenditure of $80,000 with further expenditures of $20,000 at the start of each of the next 3 years. Project B will produce returns of $90,000 at the end of each of the sixth, seventh and eighth years and will not produce any returns after the eighth year. a. What is the internal rate of return for each of the two projects? b. What is the NPV of both the projects at a risk discount rate of 5% p.a. effective? Suppose a company can borrow funds at the rate of 4% p.a. effective and reinvest at 3% p.a. effective. c. What is the value of the Accumulated Profit under both projects at the end of 10th year? Briefly discuss which Project the investment company should choose to invest. An investment company is considering between the following two capital investments. Project A requires an immediate expenditure of $150,000 and will produce returns of $25,000 at the end of each of the first 10 years (the first return is produced at the end of the first year, and etc.). Project B requires an immediate expenditure of $80,000 with further expenditures of $20,000 at the start of each of the next 3 years. Project B will produce returns of $90,000 at the end of each of the sixth, seventh and eighth years and will not produce any returns after the eighth year. a. What is the internal rate of return for each of the two projects? b. What is the NPV of both the projects at a risk discount rate of 5% p.a. effective? Suppose a company can borrow funds at the rate of 4% p.a. effective and reinvest at 3% p.a. effective. c. What is the value of the Accumulated Profit under both projects at the end of 10th year? Briefly discuss which Project the investment company should choose to invest
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