The Suboptimal Glass Company uses a process of capital rationing in its decision

Question

The Suboptimal Glass Company uses a process of capital rationing in its decision making. The firms cost of capital is 10 percent. It will only invest $61,800 this year. It has determined the internal rate of return for each of the following projects.

(a)

Pick out the projects that the firm should accept. (You may select more than one answer. Click the box with a check mark for the correct answer and click to empty the box for the wrong answer.)

(b)

If Projects E and F are mutually exclusive, which projects would you accept in spending $61,800? (You may select more than one answer. Click the box with a check mark for the correct answer and click to empty the box for the wrong answer.)

Project Project size Internal rate
of return A $ 11,700 13% B 31,700 12    C 21,700 15    D 11,700 20    E 11,700 22    F 21,700 21    G 16,700 18   

Explanation / Answer

Project Project size Internal rate Ranking based on IRR of return A $ 11,700 13% 6 B 31,700 12    7 C 21,700 15    5 D 11,700 20    3 11,700 E 11,700 22    1 11,700 F 21,700 21    2 21,700 G 16,700 18    4 16,700 61800 Answer to A) Project D, E , F ,G will be selected Answer to B) option 1 - project E is rejected and F is taken 11700 will be invested in Project A returns lost = 22-13 = 9 % * 11700 = 1053 option 2 - project F is rejected and E is taken 21700 will be invested in Project C returns lost = 21-15 = 6 % * 21700 = 1302 better go for option 1 Project D, A , F ,G will be selected

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.