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johnpaech johnpaech
wrote...
Posts: 1098
Rep: 7 0
6 years ago
Assuming that your capital is constrained, so that you only have $600,000 available to invest in projects, which projects should you invest in and in what order?
A) CBFH
B) CBGF
C) BCFG
D) CBFG
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
Read 67 times
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Replies
wrote...
6 years ago
A
Explanation:  A)

Project   
Investment   
NPV   Profitability Index   
Rank
A   135,000   6000   0.0444   8
B   200,000   30,000   0.1500   2
C   125,000   20,000   0.1600   1
D   150,000   2000   0.0133   9
E   175,000   10,000   0.0571   7
F   75,000   10,000   0.1333   3
G   80,000   9000   0.1125   4
H   200,000   20,000   0.1000   5
I   50,000   4000   0.8000   6

This is a tricky problem in that by the rankings CBFG seem optimal, but this combination leaves $120,000 on the table uninvested.  By replacing G with H the full $600,000 is invested and the NPV of the combination of projects is increased by $11,000.  Therefore, you should invest in projects CBFH.
johnpaech Author
wrote...
6 years ago
Thanks for helping with my corporate finance course
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