Interstate Appliance Inc is considering the following 3 mutually exclusive projects
Projected cash
flows for these ventures are as follows:
Plan A Plan B Plan C
Initial Initial Initial
Outlay = $3,600,000 Outlay = $6,000,000 Outlay = $3,500,000
Cash Flow: Cash Flow: Cash Flow:
Yr 1 = $-0- Yr 1 = $4,000,000 Yr 1 = $2,000,000
Yr 2= -0- Yr 2 = 3,000,000 Yr 2 = -0-
Yr 3 = -0- Yr 3 = 2,000,000 Yr 3 = 2,000,000
Yr 4 = -0- Yr 4 = -0- Yr 4 = 2,000,000
Yr 5 = $7,000,000 Yr 5 = -0- Yr 5 = 2,000,000
If Interstate Appliance has a 12% cost of capital, what decision should be made regarding the
projects above?
A) accept plan A B) accept plan B
C) accept plan C D) accept Plans A, B and C
C
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