Chapter 12Discussion Questions12-1. What are the important administrative considerations in the capital budgeting process?Important administrative considerations relate to: the search for and discoveryof investment opportunities, the collection of data, the evaluation of projects,and the reevaluation of prior decisions.12-2. Why does capital budgeting rely on analysis of cash flows rather than on net income?Cash flow rather than net income is used in capital budgeting analysis becausethe primary concern is with the amount of actual dollars generated. Forexample, depreciation is subtracted out in arriving at net income, but this non-cash deduction should be added back in to determine cash flow or actual dollarsgenerated.12-3. What are the weaknesses of the payback method?The weaknesses of the payback method are:a.There is no consideration of inflows after payback is reached.b.The concept fails to consider the time value of money.12-4. What is normally used as the discount rate in the net present value method?The cost of capital as determined in Chapter 11.12-5. What does the term mutually exclusive investments mean?The selection of one investment precludes the selection of other alternativeinvestments because the investments compete with one another. For example ifa company is going to build one new plant and is considering 5 cities, one citywill win and the others will lose.12-6. How does the modified internal rate of return include concepts from both the traditional internal rate of return and the net present value methods?The modified internal rate of return calls for the determination of the interestrate that equates future inflows to the investment as does the traditional internalrate or return. However, it incorporates the reinvestment rate assumption of thenet present value method. That is that inflows are reinvested at the cost ofcapital.12-7. If a corporation has projects that will earn more than the cost of capital, should it ration capital?From a purely economic viewpoint, a firm should not ration capital. The firmshould be able to find additional funds and increase its overall profitability andwealth through accepting investments to the point where marginal return equalsmarginal cost.12-8. What is the net present value profile? What three points should be determined to graph the profile?The net present value profile allows for the graphic portrayal of the net presentvalue of a project at different discount rates. Net present values are shown alongthe vertical axis and discount rates are shown along the horizontal axis.The points that must be determined to graph the profile are:a.The net present value at zero discount rate.b.The net present value as determined by a normal discount rate.c.The internal rate of return for the investment.12-9. How does an asset's ADR (asset depreciation range) relate to its MACRS category?The ADR represents the asset depreciation range or the expected physical lifeof the asset. Generally, the midpoint of the range or life is utilized. The longerthe ADR midpoint, the longer the MACRS category in which the asset isplaced. However, most assets can still be written off more rapidly than themidpoint of the ADR. For example, assets with ADR midpoints of 10 years to15 years can be placed in the 7-year MACRS category for depreciationpurposes.Chapter 12Problems1. Assume a corporation has earnings before depreciation and taxes of $90,000, depreciationof $40,000, and that it is in a 30 percent tax bracket. Compute its cash flow using theformat below.Earnings before depreciation and taxes _____Depreciation _____Earnings before taxes _____Taxes @ 30% _____Earnings after taxes _____Depreciation _____Cash flow _____12-1. Solution:Earnings before depreciation and taxes $90,000Depreciation –40,000Earnings before taxes 50,000Taxes @ 30% –15,000Earnings after taxes $35,000Depreciation +40,000Cash flow $75,0002. a. In problem 1, how much would cash flow be if there were only $10,000 indepreciation? All other factors are the same.b. How much cash flow is lost due to the reduced depreciation between problems1 and 2a?12-2. Solution:a. Earnings before depreciation and taxes $90,000Depreciation –10,000Earnings before taxes $80,000Taxes @ 30% –24,000Earnings after taxes $56,000Depreciation +10,000Cash flow $66,000b. Cash flow (problem 1) $75,000Cash flow (problem 2a) 66,000Difference in cash flow $ 9,000 3. Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation.It is in a 40 percent tax bracket.a. Compute its cash flow.b. Assume it has $200,000 in depreciation. Recompute its cash flow.c. How large a cash flow benefit did the depreciation provide?12-3. Solution:a. Earnings before depreciation and taxes $200,000Depreciation – 0Earnings before taxes 200,000Taxes @ 40% – 80,000Earnings after taxes 120,000Depreciation – 0Cash flow $120,00012-3. (Continued)b. Earnings before depreciation and taxes $200,000Depreciation –200,000Earnings before taxes 0Taxes @ 40% 0Earnings after taxes 0Depreciation 200,000Cash flow $200,000c. The $200,000 in depreciation provided a cash flow benefitof $80,000.Cash flow (b) $200,000Cash flow (a) 120,000Cash flow benefit $ 80,000 4. Bob Cole, the president of a New York Stock Exchange-listed firm, is very short termoriented and interested in the immediate consequences of his decisions. Assume a project that will provide an increase of $3 million in cash flow because of favorable taxconsequences, but carries a three-cent decline in earning per share because of a write-off against first quarter earnings. What decision might Mr. Cole make?12-4. Solution:Bob ColeBeing short term oriented, he may make the mistake of turning down the project even though it will increase cash flowbecause of his fear of investors’ negative reaction to the morewidely reported quarterly decline in earnings per share. Eventhough this decline will be temporary, investors might interpret it as a negative signal.Year Investment A Investment B1 $30,000 $40,0002 50,000 30,0003 20,000 15,0004 60,000 15,0005 —50,000Which of the two alternatives would you select under the payback method?12-5. Solution:Payback for Investment X Payback for Investment Y$100,000–$30,000 1 year $100,000–40,000 1 Year 70,000–50,000 2 years 60,000–30,000 2 years20,000–20,000 3 years 30,000–15,000 3 years15,000–15,000 4 yearsPayback Investment X = 3 yearsPayback Investment Y = 4 yearsInvestment X should be selected because of the faster payback.Year Investment X Investment Y1 $ 6,000 $15,0002 8,000 20,0003 9,000 10,0004 17,000 —5 20,000 —Which of the alternatives would you select under the payback method?12-6. Solution:Payback for Investment X Payback for Investment Y$40,000–$ 6,000 1 year $40,000–$15,000 1 year 34,000–8,000 2 years 25,000–20,000 2 years26,000–9,000 3 years 5,000/10,000 .5 years17,000–17,000 4 yearsPayback Investment X = 4.00 yearsPayback Investment Y = 2.50 yearsInvestment Y would be selected because of the faster payback.7. Referring back to problem 6, if the inflow in the fifth year for Investment X were$20,000,000 instead of $20,000, would your answer change under the payback method? 12-7. Solution:The $20,000,000 inflow would still leave the payback period for Investment X at 4 years. It would remain inferior to InvestmentY under the payback method.8. The Short-Line Railroad is considering a $100,000 investment in either of two companies.The cash flows are as follows:Year Electric Co. Water Works1................... $70,000 $15,0002................... 15,000 15,0003................... 15,000 70,0004-10 ............. 10,000 10,000a. Using the payback method, what will the decision be?b. Explain why the answer in part a can be misleading.12-8. Solution:Short-Line Railroada. Payback for Electric Co.Payback for Water Works$100,000–$70,000 1 year $100,000–$15,000 1 year 30,000–15,000 2 years 85,000–15,000 2 years15,000–15,000 3 years 70,000–70,000 3 yearsPayback (Electric Co.) = 3 yearsPayback (Water Works) = 3 yearsb. The answer in part a is misleading because the twoinvestments seem to be equal with the same payback periodof three year. Nevertheless, the Electric Co. is a superiorinvestment because it recovers large cash flows in the firstyear, while the large recovery for Water Works is not untilthe third year. The problem is that the payback method doesnot consider the time value of money.9. X-treme Vitamin Company is considering two investments, both of which cost $10,000.The cash flows are as follows:Year Project A Project B1 .................... $12,000 $10,0002 .................... 8,000 6,0003 .................... 6,000 16,000a. Which of the two projects should be chosen based on the payback method?b. Which of the two projects should be chosen based on the net present value method?Assume a cost of capital of 10 percent.c. Should a firm normally have more confidence in answer a or answer b?12-9. Solution:X-treme Vitamin Companya. Payback MethodPayback for Project A10,000=.83 years12,000Payback for Project B10,0001 year=10,000Under the Payback Method, you should select Project Abecause of the shorter payback period.12-9. (Continued)b. Net Present Value MethodProject AYear Cash Flow PV IF at 10%Present Value1 $12,000 .909 $10,9082 $ 8,000 .826 $ 6,6083 $ 6,000 .751 $ 4,506Present Value of Inflows $22,022Present Value of Outflows 10,000Net Present Value $12,022Project BYear Cash Flow PV IF at 10%Present Value1 $10,000 .909 $ 9,0902 $ 6,000 .826 $ 4,9563 $16,000 .751 $12,016Present Value of Inflows $26,062Present Value of Outflows 10,000Net Present Value $16,062 Under the net present value method, you should selectProject B because of the higher net present value.c. A company should normally have more confidence in answerb because the net present value considers all inflows as wellas the time value of money. The heavy late inflow for ProjectB was partially ignored under the payback method.10. You buy a new piece of equipment for $16,980, and you receive a cash inflow of $3,000per year for 12 years. What is the internal rate of return?12-10. Solution:Appendix DIFA $16,980PV 5.660$3,000==IRR = 14%For n = 12, we find 5.660 under the 14% column.11. Warner Business Products is considering the purchase of a new machine at a cost of$11,070. The machine will provide $2,000 per year in cash flow for eight years. Warner’s cost of capital is 13 percent. Using the internal rate of return method, evaluate this project and indicate whether it should be undertaken.12-11. Solution:Warner Business ProductsAppendix DPV IFA = $11,070/$2,000 = 5.535IRR = 9%For n = 8, we find 5.353 under the 9% column.The machine should not be purchased since its return is under13 percent.12. Elgin Restaurant Supplies is analyzing the purchase of manufacturing equipment that willcost $20,000. The annual cash inflows for the next three years will be:Year Cash Flow1................. $10,0002................. 9,0003................. 6,500a. Determine the internal rate of return using interpolation.b. With a cost of capital of 12 percent, should the machine be purchased?12-12. Solution:Elgin Restaurant Suppliesa. Step 1 Average the inflows.$10,0009,0006,500÷=$25,5003$8,500Step 2 Divide the inflows by the assumed annuity in Step 1.Investment$20,0002.353==Annuity8,500Step 3 Go to Appendix D for the 1st approximation.The value in Step 2 (for n = 3) falls between13% and 14%.Step 4 Try a first approximation of discounting back the inflows. Because the inflows are biased towardthe early years, we will use the higher rate of 14%.Year Cash Flow PV IF at 14%Present Value1 $10,000 .877 $ 8,7702 9,000 .769 6,9213 6,500 .675 4,388$20,079 Step 5 Since the NPV is slightly over $20,000, we need to try a higher rate. We will try 15%.Year Cash Flow PV IF at 15% Present Value1 $10,000 .870 $ 8,7002 9,000 .756 6,8043 6,500 .658 4,277$19,781 Because the NPV is now below $20,000, we know the IRR is between 14% and 15%. We will interpolate.$20,079 ........... PV @ 14% $20,079............. PV @ 14% –19,781 ........... PV @ 15% –20,000............. Cost$ 298 $ 7914% + ($79/$298) (1%)= 14% + .265 (1%) = 14.265% IRRThe IRR is 14.265%If the student skipped from 14% to 16%, the calculations to find the IRR would be as follows:Year Cash Flow PV IF at 16%Present Value1 $10,000 .862 $ 8,6202 9,000 .743 6,6873 6,500 .641 4,167$19,474 $20,079 ........... PV @ 14% $20,079............. PV @ 14%–19,474 ........... PV @ 16% –20,000............. Cost$ 605 $ 7914% + ($79/$605) (2%)=14% + (.131) (2%) = 14.262%This answer is very close to the previous answer, thedifference is due to rounding.b. Since the IRR of 14.265% (or 14.262%) is greater than thecost of capital of 12%, the project should be accepted.13. Aerospace Dynamics will invest $110,000 in a project that will produce the following cashflows. The cost of capital is 11 percent. Should the project be undertaken? (Note that the fourth year’s cash flow is negative.)Year Cash Flow1................. $36,0002................. 44,0003................. 38,0004................. (44,000)5................. 81,00012-13. Solution:Aerospace DynamicsYear Cash Flow PV IF at 11%Present Value1 $36,000 .901 $ 32,4362 44,000 .812 35,7283 38,000 .731 27,7784 (44,000) .659 (28,996)5 81,000 .593 48,033Present value of inflows $114,979Present value of outflows 110,000Net present value $ 4,979 The net present value is positive and the project should beundertaken14. The Horizon Company will invest $60,000 in a temporary project that will generate thefollowing cash inflows for the next three years.Year Cash Flow1................. $15,0002................. 25,0003................. 40,000The firm will also be required to spend $10,000 to close down the project at the end of the three years. If the cost of capital is 10 percent, should the investment be undertaken?12-14. Solution:Horizon CompanyPresent Value of InflowsYear Cash Flow× PV IF at 10%Present Value1 $15,000 .909 $13,6352 25,000 .826 20,6503 40,000 .751 30,040$64,325 Present Value of Outflows0 $60,000 1.000 $60,0003 10,000 .751 7,510$67,510Present Value of inflows $64,325Present Value of outflows 67,510Net present value ($ 3,185) The net present value is negative and the project should not beundertaken.Note, the $10,000 outflow could have been subtracted out ofthe $40,000 inflow in the third year and the same answerwould result.15. Skyline Corp. will invest $130,000 in a project that will not begin to produce returns untilafter the 3rd year. From the end of the 3rd year until the end of the 12th year (10 periods), the annual cash flow will be $34,000. If the cost of capital is 12 percent, should this project be undertaken?12-15. Solution:Skyline CorporationPresent Value of InflowsFind the Present Value of a Deferred AnnuityA = $34,000, n = 10, i = 12%PV A= A × PV IFA (Appendix D)PV A= $34,000 × 5.650 = $192,100Discount from beginning of the third period (end of secondperiod to present):FV = $192,100, n = 2, i = 12%PV = FV × PV IF (Appendix B)PV = $192,100 × .797 = $153,104Present value of inflows $153,104Present value of outflows 130,000Net present value $ 23,104The net present value is positive and the project should beundertaken.16. The Ogden Corporation makes an investment of $25,000, which yields the followingcash flows:Year Cash Flow1................. $ 5,0002................. 5,0003................. 8,0004................. 9,0005................. 10,000a. What is the present value with a 9 percent discount rate (cost of capital)?b. What is the internal rate of return? Use the interpolation procedure shown in thischapter.c. In this problem would you make the same decision in parts a and b12-16. Solution:Ogden Corporationa.Year Cash Flow ×PV IF @ 9% =Present Value1 $ 5,000 .917 $ 4,5852 5,000 .842 4,2103 8,000 .772 6,1764 9,000 .708 6,3725 10,000 .650 6,500Present value of inflows $27,843Present value of outflows –25,000Net present value $ 2,843b. Since we have a positive net present value, the internal rateof return must be larger than 9%. Because of uneven cashflows, we need to use trial and error. Counting the net presentvalue calculation as the first trial, we now try 11% for oursecond trial.12-16. (Continued)Year Cash Flow×PV IF @ 11% =Present Value1 $ 5,000 .901 $ 4,5052 5,000 .812 4,0603 8,000 .731 5,8484 9,000 .659 5,9315 10,000 .593 5,930Present value of inflows $26,274A two percent increase in the discount rate has eliminated overone-half of the net present value so another two percent shouldbe close to the answer.Year Cash Flow×PV IF @ 13% =Present Value1 $ 5,000 .885 $ 4,4252 5,000 .783 3,9153 8,000 .693 5,5444 9,000 .613 5,5175 10,000 .543 5,430Present value of inflows $24,831$26,274 ........... PV @ 11% $26,274............. PV @ 11%24,831 ............. PV @ 13% 25,000............. Cost$ 1,443 $ 1,274$1,27411%(2%)11%.883(2%)11% 1.77%12.77% +=+=+=$1,443Approximately the same answer can be derived byinterpolating between 12% and 13% instead of 11% and 13%.c. Yes, both the NPV is greater than 0 and the IRR is greaterthan the cost of capital.17. The Danforth Tire Company is considering the purchase of a new machine that wouldincrease the speed of manufacturing and save money. The net cost of this machine is $66,000. The annual cash flows have the following projections.Year Cash Flow1 ................ $21,0002 ................ 29,0003 ................ 36,0004 ................ 16,0005 ................ 8,000a. If the cost of capital is 10 percent, what is the net present value?b. What is the internal rate of return?c. Should the project be accepted? Why?12-17. Solution:The Danforth Tire Companya. Net Present ValueYear Cash Flow×10% PV IF Present Value1 $21,000 .909 $19,0892 29,000 .826 23,9543 36,000 .751 27,0364 16,000 .683 10,9285 8,000 .621 4,968Present value of inflows $85,975Present value of outflows –66,000Net present value $19,975b. Internal Rate of ReturnWe will average the inflows to arrive at an assumed annuity. $ 21,000 29,000 36,000 16,000 8,000$110,000/5 = $22,000We divide the investment by the assumed annuity value.IFA $66,0003 = PV $22,000Using Appendix D for n = 5, 20% appears to be a reasonable first approximation (2.991). We try 20%. Year Cash Flow × 20% PV IF = Present Value 1 $21,000 .833 $ 17,493 2 29,000 .694 20,126 3 36,000 .579 20,844 4 16,000 .482 7,712 58,000 .402 3,216 Present value of inflows $69,391Since 20% is not high enough, we try the next highest rateat 25%. Year Cash Flow × 25% PV IF = Present Value 1 $21,000 .800 $16,800 2 29,000 .640 18,560 3 36,000 .512 18,432 4 16,000 .410 6,560 58,000 .328 2,624 Present value of inflows $62,976The correct answer must fall between 20% and 25%. Weinterpolate.$69,391 ........... PV @ 20% $69,391............. PV @ 20%62,976 ............ PV @ 25% 66,000............. (Cost)$ 6,415 $ 3,3913,39120%(5%)20%.529 (5%)20% 2.645%22.65% 6,415+=+=+=c. The project should be accepted because the net present valueis positive and the IRR exceeds the cost of capital.18. You are asked to evaluate two projects for Adventures Club, Inc. Using the net presentvalue method combined with the profitability index approach described in footnote 2 on page ____, which project would you select? Use a discount rate of 12 percent.Project X (trips to Disneyland) ($10,000 investment)Project Y (international film festivals) ($22,000 investment)Year Cash Flow Year Cash Flow1 .............................. $4,000 1 ................................. $10,8002 .............................. 5,000 2 ................................. 9,6003 .............................. 4,200 3 ................................. 6,0004 .............................. 3,600 4 ................................. 7,000Adventures Club, Inc.NPV for Project X Year Cash Flow PV IF at 12% Present Value 1 $4,000 .893 $ 3,572 2 5,000 .797 3,985 3 4,200 .712 2,990 43,600 .636 2,290 Present value of inflows $12,837 Present value of outflows (Cost) –10,000 Net present value $ 2,837Present value of inflowsPr ofitability index (X)Pr esent value of outflows$12,837 1.2837$10,000===NPV for Project Y Year Cash Flow × PV IF at 12%= Present Value 1 $10,800 .893 $ 9,644 2 9,600 .797 7,651 3 6,000 .712 4,272 47,000 .636 4,452 Present value of inflows $26,019 Present value of outflows –22,000 Net present value $ 4,019Present value of inflowsPr ofitability index (Y)Pr esent value of outflows$26,019 1.1827$22,000===You should select Project X because it has the higherprofitability index. This is true in spite of the fact that it has alower net present value. The profitability index may beappropriate when you have different size investments. It tellsyou that for every dollar of outflows, the present value of theinflows is worth x dollars. For project X we get 1.2837 vs1.1827 for project Y. Project X has the higher internal rate ofreturn but project Y will add more value to the firm.19. Cablevision, Inc., will invest $48,000 in a project. The firm’s discount rate (cost of capital)is 9 percent. The investment will provide the following inflows.2 ................. 10,0003 ................. 16,0004 ................. 19,0005 ................. 20,000The internal rate of return is 15 percent.a. If the reinvestment assumption of the net present value method is used, what will bethe total value of the inflows after five years? (Assume the inflows come at the end ofeach year.)b. If the reinvestment assumption of the internal rate of return method is used, what willbe the total value of the inflows after five years?c. Generally is one investment assumption likely to be better than another?12-19. Solution:Cablevision, Inc.a. Reinvestment assumption of NPVNo. of FutureYear Inflows Rate Periods Value Factor Value1 $10,000 9% 4 1.412 $14,1202 10,000 9%3 1.295 12,9503 16,000 9% 2 1.188 19,0084 19,000 9% 1 1.090 20,7105 20,000 –0 1.000 20,000$86,788b. Reinvestment assumption of IRRNo. of FutureYear Inflows Rate Periods Value Factor Value1 $10,000 15% 4 1.749 $17,4902 10,000 15%3 1.521 15,2103 16,000 15% 2 1.323 21,1684 19,000 15% 1 1.150 21,8505 20,000 –0 1.000 20,000$95,718c. Not necessarily. However, for investments with a very highIRR, it may be unrealistic to assume that reinvestment cantake place at an equally high rate. The net present valuemethod makes the more conservative assumption ofreinvestment at the cost of capital.20. The 21st Century Corporation uses the modified internal rate of return. The firm has a costof capital of 8 percent. The project being analyzed is as follows ($20,000 investment):YearCash Flow1................. $10,0002................. 9,0003.................6,800a . What is the modified internal rate of return? An approximation from Appendix B is adequate. (You do not need to interpolate.)b .Assume the traditional internal rate of return on the investment is 14.9 percent. Explain why your answer in part a would be lower.12-20.Solution:21st Century Corporation Terminal Value (end of year 3)a. Period ofFutureGrowthFV factor (8%)Value Year 1 $10,000 2 1.166 $11,660 Year 2 9,000 1 1.080 9,720 Year 3 6,800 0 1.000 6,800Terminal Value$28,180To determine the modified internal rate of return, calculate the yield on the investment.IF PV PV (Appendix B)FV$20,000=.709728,180===Use Appendix B for 3 periods, the answer is approximately 12 percent (.712).12-20. (Continued)b. The modified internal rate of return (MIRR) is lower than thetraditional internal rate of return because with the MIRR youare assuming inflows are being reinvested at the cost ofcapital (8%) whereas with the traditional internal rate ofreturn, you are assuming inflows are being reinvested at theIRR (14.9 percent).21. Oliver Stone and Rock Company uses a process of capital rationing in its decision making.The firm’s cost of capital is 12 percent. It will invest only $80,000 this year. It hasdetermined the internal rate of return for each of the following projects.Project Project SizePercent of Internal Rate ofReturnA .......................... $15,000 14%B .......................... 25,000 19C .......................... 30,000 10D .......................... 25,000 16.5E .......................... 20,000 21F .......................... 15,000 11G .......................... 25,000 18H .......................... 10,000 17.5a. Pick out the projects that the firm should accept.b. If Projects B and G are mutually exclusive, how would that affect your overall answer?That is, which projects would you accept in spending the $80,000?12-21. Solution:Oliver Stone and Rock CompanyYou should rank the investments in terms of IRR.Project IRR Project Size Total BudgetE 21% $20,000 $ 20,000B 19 25,000 45,000G 18 25,000 70,000H 17.5 10,000 80,000D 16.5 25,000 105,000A 14 15,000 120,000F 11 15,000 135,000C 10 30,000 165,000a. Because of capital rationing, only $80,000 worth of projectscan be accepted. The four projects to accept are E, B, G andH. Projects D and A provide positive benefits also, butcannot be undertaken under capital rationing.b. If Projects B and G are mutually exclusive, you would selectProject B in preference to G. In summary, you would acceptE, B, H and D. Project D would replace G and is of the same$25,000 magnitude.22. Miller Electronics is considering two new investments. Project C calls for the purchase of acoolant recovery system. Project H represents an investment in a heat recovery system.The firm wishes to use a net present value profile in comparing the projects. Theinvestment and cash flow patterns are as follows:Project C ($25,000 Investment)Project H ($25,000 investment)Year Cash Flow Year Cash Flow1 ........................... $ 6,000 1 ............................... $20,0002 ........................... 7,000 2 ............................... 6,0003 ........................... 9,000 3 ............................... 5,0004 ........................... 13,000a. Determine the net present value of the projects based on a zero discount rate.b. Determine the net present value of the projects based on a 9 percent discount rate.c. The internal rate of return on Project C is 13.01 percent, and the internal rate of returnon Project H is 15.68 percent. Graph a net present value profile for the twoinvestments similar to Figure 12-3. (Use a scale up to $10,000 on the vertical axis,with $2,000 increments. Use a scale up to 20 percent on the horizontal axis, with5 percent increments.)d. If the two projects are not mutually exclusive, what would your acceptance orrejection decision be if the cost of capital (discount rate) is 8 percent? (Use the netpresent value profile for your decision; no actual numbers are necessary.)e. If the two projects are mutually exclusive (the selection of one precludes the selectionof the other), what would be your decision if the cost of capital is (1) 5 percent,(2) 13 percent, (3) 19 percent? Use the net present value profile for your answer.。
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