Listed below are the cash flow characteristics of four investment projects. Investment finance is rationed in Years 0 and 1 to £100,000 at each time. Projects cannot be delayed nor can they be brought forward. The cost of finance is 10 per cent.

Transcribed Image Text:

Project W X Y Z Year 0 000 (70) (80) Year 1 000 (20) (90) 10 (50) Year 2 000 60 60 60 30 Year 3 000 60 50 30 30 NPV (at 10%) 000 6.44 5.30 1.18 1.86 (Note that the NPVs for all four projects are as at Year 0 (now) even for Projects X and Z, which, even if selected, will not commence until Year 1. Also note that Project W requires cash outflows in both Years 0 and 1.) Set out the various statements that must be satisfied so as to maximise NPV but meet the financing constraints.