Question 3A company has $20 million available to invest in new projects. There are three independent projectsthat it is considering. The after-tax cash flows of the projects are as follows:ProjectABCYear 0 cash flow(20 million)(10 million)(10 million)Year 1 cash flow20 million8 million6 millionYear 2 cash flow10 million7 million10 millionCalculate the IRR, PI and NPV of each of the two-year projects and recommend which project(s) thecompany should invest in (and why). The company's cost of capital is 12%.

Recommendation:Based on the calculations:Project A has the highest NPV ($13.95 million) and IRR…

Answered: Question 3 A company has $20 million…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 21P

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