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 firm’s cost of capital is 10 percent. It will only invest $82,200 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. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
  

b. If Projects A and E are mutually exclusive, which projects would you accept in spending the $82,200? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

Project Project Size Internal Rate
of Return A $ 11,800 19 % B 31,800 15 C 26,800 18 D 11,800 11 E 11,800 22 F 21,800 12 G 16,800 14

Explanation / Answer

1) The co. should accept the following Projects :

E : 11800

A : 11800

C : 26800

B : 31800

Total Investment : $ 82,200

These are the Projects which have the highest IRR's

2) If A and E are mutually exclusive Projects the co. should select the following Projects:

E : 11800

C : 26800

B : 31800

D : 11800

Thus total investment is 82,200

These are the Projects which have the highest IRR's. Also note that F and G cannot be selected as there is a budget contraint.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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