Problem: The James Company is considering investing in a new project. The project’s forecasted net cash flows are the following:
|
YEAR
|
PROJECT'S FORECASTED NET CASH FLOW ($)
|
|
0
|
-150,000
|
|
1
|
2,000
|
|
2
|
8,000
|
|
3
|
15,000
|
|
4
|
35,000
|
|
5
|
20,000
|
|
6
|
30,000
|
|
7
|
11,000
|
|
8
|
14,000
|
|
9
|
18,000
|
|
10
|
60,000
|
Q1. The project’s cost of capital is 11%. Should the project be accepted or not? Why or why not?
Q2. Would you anticipate that a firm’s Return on Common Equity would be smaller or larger than that same firm’s Return on Total Assets?