Xia Corporation is a company whose sole assets are $ 100, 000 in cash and three...

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Finance

Xia Corporation is a company whose sole assets are $ 100, 000 incash and three projects that it will undertake. The projects are?risk-free and have the following cash? flows:?
Project Cash Flow Today Cash Flow in One Year
A -$ 21,000 $ 27,000
B -$15,000 $30,000
C -$ 56,000 $ 82,000
Xia plans to invest any unused cash today at the? risk-freeinterest rate of 10.6 %. In one? year, all cash will be paid toinvestors and the company will be shut down. a. What is the NPV ofeach? project? Which projects should Xia undertake and how muchcash should it? retain? b. What is the total value of? Xia'sassets? (projects and? cash) today? c. What cash flows will theinvestors in Xia? receive? Based on these cash? flows, what is thevalue of Xia? today? d. Suppose Xia pays any unused cash toinvestors? today, rather than investing it. What are the cash flowsto investors in this? case? Based on these cash? flows, what is thevalue of Xia? today? e. Explain the relationship in your answers toparts ?(b?), ?(c?), and ?(d?).

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4.1 Ratings (793 Votes)

a Project NPVs Since the projects are riskfree the discount rate will be the riskfree interest rate of 106 Project CF0 CF1 PV of CF1 CF11106 NPV CF0 PV of CF1 A 2100000 2700000 2441230 341230 B 1500000 3000000 2712477 1212477 C 5600000 8200000 7414105 1814105 Total investment required in the three projects 21000 See Answer

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Xia Corporation is a company whose sole assets are $ 100, 000 incash and three projects that it will undertake. The projects are?risk-free and have the following cash? flows:?Project Cash Flow Today Cash Flow in One YearA -$ 21,000 $ 27,000B -$15,000 $30,000C -$ 56,000 $ 82,000Xia plans to invest any unused cash today at the? risk-freeinterest rate of 10.6 %. In one? year, all cash will be paid toinvestors and the company will be shut down. a. What is the NPV ofeach? project? Which projects should Xia undertake and how muchcash should it? retain? b. What is the total value of? Xia'sassets? (projects and? cash) today? c. What cash flows will theinvestors in Xia? receive? Based on these cash? flows, what is thevalue of Xia? today? d. Suppose Xia pays any unused cash toinvestors? today, rather than investing it. What are the cash flowsto investors in this? case? Based on these cash? flows, what is thevalue of Xia? today? e. Explain the relationship in your answers toparts ?(b?), ?(c?), and ?(d?).