This question was answered except for part c. Does the \"reinvestment\" question

Question

This question was answered except for part c. Does the "reinvestment" question just mean redo the problem with cost of capital of 15% vs. 12%?

A firm's cost of capital is 12 percent. The firm has three investments to choose among; the cash flows of each are as follows:
Cash Inflows
A B C
Year 1 $395 -- $1,241
2 395 -- --
3 395 -- --
4 -- $1,749 --
Each investment requires a $1,000 cash outlay, and investments B and C are mutually exclusive.
a. Which investment(s) should the firm make according to the net present values? Why?
b. Which investment(s) should the firm make according to the internal rates of return? Why?
c. If all funds are reinvested at 15 percent, which investment(s) should the firm make? Would your answer be different if the reinvestment rate were 12 percent?

Explanation / Answer

yes, definitely the answer will be different,

to solve this

First we have to calculate the Future value of all the cash flow at the rate of 15% and again discount the FV will 12% rate only then we ca ncalculate the Present Value,

thank you

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