Question
1. A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.
|
Year
|
A
|
B
|
C
|
|
0
|
-300
|
-100
|
-300
|
|
1
|
100
|
-50
|
100
|
|
2
|
100
|
100
|
100
|
|
3
|
100
|
100
|
100
|
|
4
|
100
|
100
|
100
|
|
5
|
100
|
100
|
100
|
|
6
|
100
|
100
|
100
|
|
7
|
-100
|
-200
|
0
|
2. Explain thoroughly how stock portfolios affect the risk to an investor.
3. Which of the following would cause the future value of an annuity to decrease?
Reducing the number of payments.
Increasing the number of payments.
Increasing the interest rate.
Decreasing the liquidity of the payments.
4.In a TVM calculation, if incoming cash flows are positive, outgoing cash flows must be
positive.
negative.
either positive or negative. It really doesn't matter.
stated in time units that are different from the time units in which the interest rates are stated.