Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% i. What is each project’s Payback and discounted payback periods and interpret these numbers? ii. What is each project’s NPV? iii. What is each project’s IRR?
Q-2.
(a)
A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6%
i. What is each project’s Payback and discounted payback periods and interpret these numbers?
ii. What is each project’s
iii. What is each project’s
iv. What is each project’s MIRR?
v. From your answers to Parts a, b, c and d, which project would be selected?
vi. What is each project’s profitability index?
vii. What is difference between mutually exclusive and independent projects?
viii. List the characteristics of a good capital budgeting technique.
ix. Briefly explain the acceptance and rejection criteria for each technique regarding mutually exclusive and independent projects.
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