(Read the chapter appendix before attempting this problem.) A com- pany is considering the following investment opportunities. Investment A B C Initial cost ($ millions) $5.5 $3.0 $2.0 Expected life. 10 yrs 10 yrs 10 yrs NPV @ 15% $340,000 $300,000 $200,000 IRR 20% 30% 40%

a. If the company can raise large amounts of money at an annual cost of 15 percent, and if the investments are independent of one an- other, which should it undertake?

b. If the company can raise large amounts of money at an annual cost of 15 percent, and if the investments are mutually exclusive, which should it undertake?

c. If the company has a fixed capital budget of $5.5 million, and if the investments are independent of one another, which should it undertake?

AppendixLO1