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% 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. i
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% 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. i
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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%
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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