Three mutually exclusive investment alternatives are under consideration. The initial capital outlays and the pattern of the net annual cash benefits (revenues - expenses) for each alternatives are presented in the following table. Based on NPV analysis, if the company’s minimum acceptable rate of return is 10%, which alternative should be the best economic choice? Use appropriate IRR analysis to double-check your selection. Investment, M$ A B C Initial cost -$200 -$350 -$500 Net Revenues, year 1 to 3 $80 $105 $85 Net Revenues, year 4 $60 $90 $150 Net Revenues, year 5 $40 $80 $250
Three mutually exclusive investment alternatives are under consideration. The initial capital outlays and the pattern of the net annual cash benefits (revenues - expenses) for each alternatives are presented in the following table. Based on NPV analysis, if the company’s minimum acceptable rate of return is 10%, which alternative should be the best economic choice? Use appropriate IRR analysis to double-check your selection. Investment, M$ A B C Initial cost -$200 -$350 -$500 Net Revenues, year 1 to 3 $80 $105 $85 Net Revenues, year 4 $60 $90 $150 Net Revenues, year 5 $40 $80 $250
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 7P
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Q.1. Three mutually exclusive investment alternatives are under consideration. The initial capital outlays and the pattern of the net annual cash benefits (revenues - expenses) for each alternatives are presented in the following table. Based on
|
Investment, M$ |
||
|
A |
B |
C |
Initial cost |
-$200 |
-$350 |
-$500 |
Net Revenues, year 1 to 3 |
$80 |
$105 |
$85 |
Net Revenues, year 4 |
$60 |
$90 |
$150 |
Net Revenues, year 5 |
$40 |
$80 |
$250 |
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