Project IRR Cost NPV at 9% A 18% $4,000,000 1,000,000 B 16% $1,000,000 200,000 C

ID: 2628466 • Letter: P

Question

Project IRR Cost NPV at 9%

A 18% $4,000,000 1,000,000

B 16% $1,000,000 200,000

C 14% $5,000,000 900,000

D 12% $2,000,000 400,000

E 10% $3,000,000 100,000

15. Which set of projects would maximize shareholder wealth if they have a capital budget of $7,000,000?

a. A and C.

b. A and E.

c. A, B, and D.

d. B and D.

16. Suppose it can raise the following amounts at different costs of capital. Which set of projects would maximize shareholder wealth?

WACC Amount Raised

9% $10,000,000

11% $12,000,000

13% $15,000,000

a. A and B.

b. A, B, and C.

c. A, B, and D.

d. A, B, C, and D.

15)

a) A and C ( insufficient capital since, a budget of 9,000,000 would be required to take up both A and C simultaneously)

b) A and E ( NPV - 1,100,000)

c)A, B and D ( NPV = 1,600,000)

d)B and D ( NPV = 600,000)

Hence choice b) would maximize the shareholder wealth by maximizing the NPV

16)

a) A and D

Capital required = 4,000,000+2,000,000 = 6,000,000

Cost of capital = 9%

NPV of A and D combined = $ 1,400,000

Net profit = $1,400,000

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