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Risk-free Interest Rate = 9.50%
Project A:
NPV = -$16,000 + $27,000/1.095
NPV = $8,657.53
Project B:
NPV = -$8,000 + $23,000/1.095
NPV = $13,004.57
Project C:
NPV = -$61,000 + $79,000/1.095
NPV = $11,146.12
All projects have positive NPV, and Xia has enough cash, so Xia should take all of them.
Answer b.
Total Value of Assets = Cash + NPV of Projects
Total Value of Assets = $100,000 + $8,657.53 + $13,004.57 + $11,146.12
Total Value of Assets = $132,808.22
Answer c.
Cash in hand to day = $100,000
Cash invested in projects = $16,000 + $8,000 + $61,000
Cash invested in projects = $85,000
Cash invested for 1 year = $100,000 - $85,000
Cash invested for 1 year = $15,000
Cash flow in 1 year = $15,000*1.095 + $27,000 + $23,000 + $79,000
Cash flow in 1 year = $145,425
Cash flow in 1 year = $145,425
Value of Xia today = $145,425/1.095
Value of Xia today = $132,808.22
Answer d.
Unused Cash = $100,000 - $85,000
Unused Cash = $15,000
Cash flow today = $15,000
Cash flow in 1 year = $27,000 + $23,000 + $79,000
Cash flow in 1 year = $129,000
Value of Xia today = $15,000 + $129,000/1.095
Value of Xia today = $132,808.22
Answer e.
Results from (b), (c), and (d) are the same because all methods value Xia's assets today.
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