Consider these three independent projects:

a. If there is no limit on the capital budget, which projects would you choose? Why?

b. If there is a limit on the capital budget of $300,000, which projects would you choose? Why?

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Period FF GG HH 0 -$100,000-$200,000 -$300,000 1 30,000 40,000 40,000 2 30,000 40,000 40,000 3 30,000 40,000 40,000 4 40,000 120,000 240,000 Cost of capital 5% 6% 7%