Screening Function
Response to the following problem:
Your company's cost of capital was determined to be 12%. Several investment alternatives are being considered, and the discounted cash flows have given the following results:
Net present value:
1. A new machine was analyzed, and a net present value of zero resulted.
2. A new product line was analyzed, and a negative net present value of $60 resulted.
3. An investment was being considered. The analysis yielded a net present value of $250.
Internal rate of return:
1. A plant expansion project promised a yield of 12%.
2. An investment in additional transport trucks would yield an internal rate of return of 10%.
3. The addition of another assembly line would add cash flows that would give an internal rate of return of 16%.
Determine which projects should be accepted as investment opportunities and which should be rejected.