Two mutually exclusive investments cost $10,000 each and have the following cash inflows. The firm’s cost of capital is 12%.
Part A: Solve each of the following problems: Two mutually exclusive investments cost $10,000 each and have the following cash inflows. The firm’s cost of capital is 12%. Investment
Cash inflow A B
Year 1 $12,407 -----
Year 2 ------ -----
Year 2 ------ -----
Year 4 ------ $19,390 A. What is the net present value of each investment? B. What is the internal rate of return of each investment? C. Which investment(s) should the firm make? D. Would your answers be different to C if the funds received in Year 1 for investment A could be reinvested at 16%? Show your work. 2. Given the following information, answer the following questions: TR = $3Q TC = $1,500 + $2Q A. What is the break-even level of output? B. If the firm sells 1,300 units, what are its earnings or losses? C. If sales rise to 2,000 units, what are the firm’s earnings or losses? D. If the total cost equation were TC = $2,000 + $1.80Q, what happens to the brea...