Project #39807 - Corporate Finance

Question 1 (10 marks)

 

 

You want to travel to Europe to visit relatives when you graduate from college three years from now.

 

The trip is expected to cost a total of $10,000 at that time. Your parents have deposited $5,000 for you

 

in a CD paying 6% interest annually, maturing three years from now. Aunt Hilda has agreed to finance

 

the balance. If you are going to put Aunt Hilda's gift in an investment earning 10% over the next three

 

years, how much must she deposit now, so you can visit your relatives at the end of three years?

 

 

Question 2 (20 marks)

 

 

Consider the following two mutually exclusive projects:

 

The company requires a return of 14% on the investment.

 

a) Which project should the company choose based on Payback period and why?

 

b) Which project should the company choose based on NPV and why?

 

c) Which project should the company choose based on IRR and why?

 

d) Which project should the company choose based on Profitability Index and why?

 

e) Which project should the company finally choose and why?

 

 

Subject Business
Due By (Pacific Time) 09/17/2014 10:00 am
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