c. If the WACC rose to 12% would this affect your recommendation? I. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any project that has a negative NPV. II. When the WACC increases to 12%, the NPV of costs are now lower for LCC than HCC. III. When the WACC increases to 12%, the NPV of costs are now lower for HCC than LCC. IV. When the WACC increases to 12%, the IRR for LCC is greater than the IRR for HCC, LCC would be chosen. V. When the WACC increases to 12%, the IRR for HCC is greater than the IRR for LCC, HCC would be chosen. -Select- : Why do you think this result occurred? I. The reason is that when you discount at a higher rate you are making negative CFs higher and this lowers the NPV. II. The reason is that when you discount at a higher rate you are making negative CFs smaller and this lowers the NPV. III. The reason is that when you discount at a higher rate you are making negative CFs smaller thus improving the NPV. IV. The reason is that when you discount at a higher rate you are making negative CFs higher thus improving the IRR. V. The reason s that when you discount at a higher rate you are making negative CFs higher thus improving the NPV. -Select-:
c. If the WACC rose to 12% would this affect your recommendation? I. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any project that has a negative NPV. II. When the WACC increases to 12%, the NPV of costs are now lower for LCC than HCC. III. When the WACC increases to 12%, the NPV of costs are now lower for HCC than LCC. IV. When the WACC increases to 12%, the IRR for LCC is greater than the IRR for HCC, LCC would be chosen. V. When the WACC increases to 12%, the IRR for HCC is greater than the IRR for LCC, HCC would be chosen. -Select- : Why do you think this result occurred? I. The reason is that when you discount at a higher rate you are making negative CFs higher and this lowers the NPV. II. The reason is that when you discount at a higher rate you are making negative CFs smaller and this lowers the NPV. III. The reason is that when you discount at a higher rate you are making negative CFs smaller thus improving the NPV. IV. The reason is that when you discount at a higher rate you are making negative CFs higher thus improving the IRR. V. The reason s that when you discount at a higher rate you are making negative CFs higher thus improving the NPV. -Select-:
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 20P: The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting,...
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