The Cooper Electronics Company has developed the followingschedule of potential

Question

The Cooper Electronics Company has developed the followingschedule of potential investment projects that may be undertakenduring the next six months: Project      Cost (in millionsofdollars)         Expectedrate of return A               $3.0                                             20% B                1.5                                             22% C                 7.5                                                7% D                 14.0                                             10% E                  50.0                                             12% F                  12.0                                             9% G                  1.0                                             44% a) If Cooper requires a minimum rate of return of 10percent onall investments, which projects should be adopted? b) In general, how would a capital budgeting constraint on theavailable amount of investment funds influence thesedecisions? c) How would differing levels of project risk influence thesedecisions? The Cooper Electronics Company has developed the followingschedule of potential investment projects that may be undertakenduring the next six months: Project      Cost (in millionsofdollars)         Expectedrate of return A               $3.0                                             20% B                1.5                                             22% C                 7.5                                                7% D                 14.0                                             10% E                  50.0                                             12% F                  12.0                                             9% G                  1.0                                             44% a) If Cooper requires a minimum rate of return of 10percent onall investments, which projects should be adopted? b) In general, how would a capital budgeting constraint on theavailable amount of investment funds influence thesedecisions? c) How would differing levels of project risk influence thesedecisions?

Explanation / Answer

Project

Cost (in million of dollars)

Expected rate of return

A

B

C

D

E

F

G

Project

Cost (in million of dollars)

Expected rate of return

A

B

D

E

G

Project

Cost (in million of dollars)

Expected rate of return

A

$3,000,000.00 20%

B

$1,500,000.00 22%

C

$7,500,000.00 7%

D

$14,000,000.00 10%

E

$50,000,000.00 12%

F

$12,000,000.00 9%

G

$1,000,000.00 44% Note: The minimum rate ofreturn(r) is higher than the Expected rate of return (k) [r>k],the           Projectshall be accepted. The Project shall be rejected if itsminimum rate of return           is lowerthan the Expected rate of return (r<k).                                                  Acceptif             r>k                                                  Rejectif              r<k                                                  May accept if       r =k

Project

Cost (in million of dollars)

Expected rate of return

A

$3,000,000.00 20%

B

$1,500,000.00 22%

D

$14,000,000.00 10%

E

$50,000,000.00 12%

G

$1,000,000.00 44% Note:    These projectsshould be accepted as the Expected rate of return is            higher than the minimum rate of return (10%) which means thatthe            projects will be profitable as the returns are higher than the costof the            project (capital).

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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