M/s Sons & Sons is considering two projects, A & B, with cash flows as shown below:periodCash Flow ofProject BProject BProject AProject B0-90,000-150,000130,00072,000230,00035,000330,00040,000430,00025,000 Calculate discounted payback period, net present value and internal rate of return for each project using opportunity cost of capital 13 % & 9% for project A & B respectively. Which project(s) should be accepted if : (i) The projects are mutually exclusive and there is no capital constraint. (ii) The projects are independent and there is no capital constraint.(iii) The projects are independent and there is a total of $100,000 of financing for capital outlays in the coming period. c. Why the cost of capital for A might be higher than for B. State possible reason(s)

1. At 13% cost of capital- Discounted Payback period is 4.034 years Year Cash Flow Net Cash…

Answered: M/s Sons & Sons is considering two…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 13P

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M/s Sons & Sons is considering two projects, A & B, with cash flows as shown below:

period	Cash Flow ofProject BProject B
Project A	Project B
0	-90,000	-150,000
1	30,000	72,000
2	30,000	35,000
3	30,000	40,000
4	30,000	25,000

Calculate discounted payback period, net present value and internal rate of return for each project using opportunity cost of capital 13 % & 9% for project A & B respectively.
Which project(s) should be accepted if :

(i) The projects are mutually exclusive and there is no capital constraint.

(ii) The projects are independent and there is no capital constraint.

(iii) The projects are independent and there is a total of $100,000 of financing for capital outlays in the coming period.

c. Why the cost of capital for A might be higher than for B. State possible reason(s)

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