u thè hrm implement? Why? P12-19 optimal group of projects from those shown in t
ID: 2802815 • Letter: U
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u thè hrm implement? Why? P12-19 optimal group of projects from those shown in the following table, given its capital budget of $1 million. Capital rationing: NPV approach Afirm with a 13% cost of capital must select the buits d and b. Project Initial investment NPV at 13% cost of capital $ 84,000 10,000 25,000 90,000 70,000 50,000 160,000 $300,000 200,000 -100,000 -900,000 500,000 100,000 -800,000 a. Calculate the present value of cash inflows a b. Select the optimal group of projects,keping in mind ssociated with each project. that unused funds are costly. penal he Focus on Ethics box on page 481). up of pr invironmental Protection Agency sometimes imposes m that hasExplanation / Answer
a)
Present value of Cash Inflow = Positive figure of Initial Investment + NPV
b)
Since We are having Capital Budget of $ 1000000
Therefore Option are available for Investment
1)Project G, Project F & Project C, would lead to Investment of $ 1000000
Total NPV = 160000+50000+25000=235000
2)Project G & Project B
Total NPV = 160000+10000=170000
3)Project D & Project F
Total NPV = 90000+50000=140000
4)Project D & Project C
Total NPV = 90000+25000=115000
5) Project A,Project E ,Project F, Project C
Total NPV = 84000+70000+50000+25000 = 229000
6) Project A,Project E ,Project B
Total NPV = 84000+70000+10000 = 164000
Therefore Optimal group would be Project G, Project F & Project C which would provide highest NPV
Project Initial Investment NPV at 13% Present value of Cash Inflow [a] [b] [c = a+b] A 300000 84000 384000 B 200000 10000 210000 C 100000 25000 125000 D 900000 90000 990000 E 500000 70000 570000 F 100000 50000 150000 G 800000 160000 960000Related Questions
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