A firm is considering the following independent investments:

In the absence of capital rationing,what is the total NPV of the projects that should be selected? Which projects should be selected if the company only has $200M to invest?

Question

A firm is considering the following independent investments:

In the absence of capital rationing,what is the total NPV of the projects that should be selected? Which projects should be selected if the company only has $200M to invest?

Quizplus · Accepted Answer

Step 1 - Sum the NPV's of all the positive NPV projects.
NPV = $1.00 + $4.40 + $4.00 + $1.30 = $10.70M
Step 2 - Using the PI to rank projects, determine which projects should be accepted with $200M to spend.
Project H ($60M) + Project G ($80M) + Project J ($40M) = $180M. No other projects can be afforded.

A Firm Is Considering the Following Independent Investments