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The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $50 million on a large-scale, integrated plant that will provide an expected cash flow stream of $8 million per year for 20 years. Plan B calls for the expenditure of $15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of $3.4 million per year for 20 years. The firm's cost of capital is 10%.
a. A. Calculate each project's NPV and IRR.
b. B. Set up a Project by showing the cash flows that will exist if the firm goes with the large plant rather than the smaller plant. What are the NPV and IRR for this Project?
C. Give a logical brief explanation, based on reinvestment rates and opportunity costs, as to why the NPV method is better that the IRR method when the firm's cost of capital is constant at some value such as 10%
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Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.20 million.
Objective and multiple choice questions on Financial Econometrics responsible for creating financial statements.
If the initial outlay for such a production is $1,500,000 and the appropriate discount rate is 6 percent for the cash flows, then what is the profitability index for the project
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