Capital rationing Belinda Company has total investment funds of $1,350,000. It is evalu- ating several capital projects to decide which should be funded. The available projects have the following costs and total present values of future cash savings, given in thousands of dollars:

Projects B and F are complementary and if one is adopted the other must be adopted also. The company evaluates projects using net present value and the profitability index. It wants to maximize the net present value and PI of the projects given the limitation on funds. Whatever funds are not used for the capital projects will be invested in corporate bonds yielding 15 percent return per year.
REQUIRED

a. Compute the NPV and PI for each project.

b. Decide what combination of projects should be accepted in order to obtain the maximum NPV and PI.

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Present Value Project Cost of Cash Savings A $400 $500 B 200 370 CDEF 620 800 210 300 100 150 F 80 100