=+7* Seddet International is considering four major projects which have either two- or three-

year lives. The firm has raised all of its capital in the form of equity and has never borrowed money. This is partly due to the success of the business in generating income and partly due to an insistence by the dominant managing director that borrowing is to be avoided if at all possible. Shareholders in Seddet International regard the firm as rel-

atively risky, given its existing portfolio of projects. Other firms' shares in this risk class have generally given a return of 16 per cent per annum and this is taken as the opportunity cost of capital for the investment projects. The risk level for the proposed projects is the same as that of the existing range of activities.

Project Net cash flows Points in time (yearly intervals)

-5,266 2,500 2.500 2,500 B

-8,000 0

0 10,000 C

-2,100 200 2.900 0

D

-1,975 1,600 800 0

Ignore taxation and inflation.