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
Problem 1PS
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Question
You work in the capital budgeting part of your firm and must decide which of the proposed projects should be accepted for the upcoming year. You cannot do all of them since only $6 million is available. Which projects should be accepted?
Transcribed Image Text:### Project Costs and Net Present Value (NPV)
The following table summarizes the cost and Net Present Value (NPV) for each project:
| Project | Cost (millions) | NPV (millions) |
|---------|-----------------|----------------|
| A | 3.25 | 0.80 |
| B | 1.75 | 0.52 |
| C | 4.50 | 0.69 |
| D | 3.75 | 0.95 |
| E | 1.25 | 0.25 |
| F | 0.50 | 0.25 |
**Explanation:**
- **Project A**: Requires a cost of 3.25 million with an NPV of 0.80 million.
- **Project B**: Involves a cost of 1.75 million with an NPV of 0.52 million.
- **Project C**: Has a cost of 4.5 million and delivers an NPV of 0.69 million.
- **Project D**: Costs 3.75 million and results in an NPV of 0.95 million.
- **Project E**: Entails a cost of 1.25 million, yielding an NPV of 0.25 million.
- **Project F**: With a cost of 0.50 million, it achieves an NPV of 0.25 million.
The table provides a clear financial overview, helping stakeholders evaluate investment opportunities effectively based on cost and potential returns.
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