Year Project 1 Project 2 0 -24,000 -24,000 1 10,620 12,100 2 10,900 9,360 3 10,500...
| Year | Project 1 | Project 2 |
| 0 | -24,000 | -24,000 |
| 1 | 10,620 | 12,100 |
| 2 | 10,900 | 9,360 |
| 3 | 10,500 | 10,400 |
The goal of the corp. financial management is to maximize the current market value per share of the existing stock (current market value of the existing owners' equity). Which investment should be made if the required rate of return is 10% for each project? Explain why and show work.
Homework Answers
Ans Choose Project 1 since it has higher NPV than project 2.
| PROJECT 1 | ||||
| Year | Project Cash Flows (i) | DF@ 10% | DF@ 10% (ii) | PV of Project ( (i) * (ii) ) |
| 0 | -24000 | 1 | 1 | (24,000.00) |
| 1 | 10620 | 1/((1+10%)^1) | 0.909 | 9,654.55 |
| 2 | 10900 | 1/((1+10%)^2) | 0.826 | 9,008.26 |
| 3 | 10500 | 1/((1+10%)^3) | 0.751 | 7,888.81 |
| NPV | 2,551.62 | |||
| PROJECT 2 | ||||
| Year | Project Cash Flows (i) | DF@ 10% | DF@ 10% (ii) | PV of Project ( (i) * (ii) ) |
| 0 | -24000 | 1 | 1 | (24,000.00) |
| 1 | 12100 | 1/((1+10%)^1) | 0.909 | 11,000.00 |
| 2 | 9360 | 1/((1+10%)^2) | 0.826 | 7,735.54 |
| 3 | 10400 | 1/((1+10%)^3) | 0.751 | 7,813.67 |
| NPV | 2,549.21 | |||
Add Answer to:
Year
Project 1
Project 2
0
-24,000
-24,000
1
10,620
12,100
2
10,900
9,360
3
10,500...
All answers must be entererd as formulas CHAPTER 8 0 Seved Help Save & Exit Submit...
All
answers must be entererd as formulas
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order to make an investment judgement through a price multiple
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