Capital rationing-NPV approach A firm with a 13.7% cost of capital must select the optimal group of projects from those shown in the following table, given its capital budget of $1.00 million. Project A B BC C E F G Initial investment - $300,000 - 200,000 - 200,000 - 800,000 - 400,000 - 100,000 - 600,000 NPV at 13.7% cost of capital $82,000 7,000 17,000 91,000 80,000 48,000 152,000 a. Calculate the present value of cash inflows associated with each project. b. Select the optimal group of projects, keeping in mind that unused funds are costly.
Capital rationing-NPV approach A firm with a 13.7% cost of capital must select the optimal group of projects from those shown in the following table, given its capital budget of $1.00 million. Project A B BC C E F G Initial investment - $300,000 - 200,000 - 200,000 - 800,000 - 400,000 - 100,000 - 600,000 NPV at 13.7% cost of capital $82,000 7,000 17,000 91,000 80,000 48,000 152,000 a. Calculate the present value of cash inflows associated with each project. b. Select the optimal group of projects, keeping in mind that unused funds are costly.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Capital rationing-NPV approach A firm with a 13.7% cost of capital must select the optimal group of
projects from those shown in the following table, given its capital budget of $1.00 million.
Project
A
B
с
D
E
F
G
Initial investment
-$300,000
- 200,000
- 200,000
- 800,000
- 400,000
- 100,000
- 600,000
NPV at 13.7%
cost of capital
$82,000
7,000
17,000
91,000
80,000
48,000
152,000
a. Calculate the present value of cash inflows associated with each project.
b. Select the optimal group of projects, keeping in mind that unused funds are costly.
a. Calculate the present value of cash inflows associated with each project.
The present value of cash inflows for project A is $
(Round to the nearest dollar.)
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