Mushi Heavy Industries manufactures primarily heavy machinery and drilling installations for mining, oil wells, and other similar industries. The vice-president of the transport division, newly created for bulk transportation of raw materials, is preparing a capital budget for the coming year for inclusion in the companywide capital budget. The managers of the six subdivisions of the transport division have each submitted a capital investment proposal to the vice-president, who must decide which project(s) to include in the submission to corporate head office. The proposals are listed below. All are considered equally risky.

The vice-president has to decide which of the proposed projects to include in the transport division?s submission. Mushi has a cost of capital of 15%. The transport division has been allocated $7 million for capital investment purposes.

Required:

1. Calculate, for each project, the expected ROI and the RI.

2. Which projects will be funded and what will be the total investment, total return, ROI, and total RI?

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Investment Required Expected Return Project $4,800,000 $1,200,000 627,000 1,900,000 182,000 1,400,000 950,000 152,000 650,000 136,000 300,000 90,000 4.