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  • A Firm Has 100 Million Available For Capital Expenditures It

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    Muhammad Shahid
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    A firm has $100 million available for capital expenditures and is considering two projects, Project A or Project B, that each cost $100 million. Project A has a higher IRR and NPV than Project B but will increase short-term EPS, while Project B has a higher long-term return but will reduce short-term EPS since it will take several years to generate revenues. The firm must decide whether short-term EPS impacts should influence its choice of projects.

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    A Firm Has 100 Million Available for Capital Expenditures It

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    A Firm Has 100 Million Available for Capital Expenditures It

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    A firm has $100 million available for capital expenditures and is considering two projects, Project A or Project B, that each cost $100 million. Project A has a higher IRR and NPV than Project B but will increase short-term EPS, while Project B has a higher long-term return but will reduce short-term EPS since it will take several years to generate revenues. The firm must decide whether short-term EPS impacts should influence its choice of projects.

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    © All Rights Reserved
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    12 views1 page

    A Firm Has 100 Million Available For Capital Expenditures It

    Uploaded by

    Muhammad Shahid
    A firm has $100 million available for capital expenditures and is considering two projects, Project A or Project B, that each cost $100 million. Project A has a higher IRR and NPV than Project B but will increase short-term EPS, while Project B has a higher long-term return but will reduce short-term EPS since it will take several years to generate revenues. The firm must decide whether short-term EPS impacts should influence its choice of projects.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    A firm has 100 million available for capital expenditures It

    #6145
    A firm has $100 million available for capital expenditures. It is considering investing in one of
    two projects; each has a cost of $100 million. Project A has an IRR of 20 percent and an NPV of
    $9 million. It will be terminated at the end of 1 year at a profit of $20 million, resulting in an
    immediate increase in earnings per share (EPS). Project B which cannot be postponed has an
    IRR of 30 percent and an NPV of $50 million. However, the firm's short-run EPS will be reduced
    if it accepts Project B, because no revenues will be generated for several years.a. Should the
    short-run effects on EPS influence the choice between the two projects?b. How might situations
    like the one described here influence a firm's decision to use payback as a part of the capital
    budgeting process?View Solution:
    A firm has 100 million available for capital expenditures It

    ANSWER
    http://paperinstant.com/downloads/a-firm-has-100-million-available-for-capital-expenditures-it/

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