1. What is the equivalent annual cost for a project that requires a $50,000 investment at time-period zero, and a $10,000 annual expense during each of the next 4 years, if the opportunity cost of capital is 10%?

2. Suppose the capital budget in the lecture example worksheet in was $100,000. What is the NPV of the best project(s)?

Click here for the spreadsheet and open the "Capital Rationing" worksheet.

A B D F WACC= PI 10.00% Fixed Budget = $250,000 Project Initial Investment PV of Inflows NPV IRR A -$80,000 $100,000 $20,000 B -$70,000 $112,000 $42,000 -$100,000 $145,000 $45,000 D -$40,000 $36,000 -$4,000 E $60,000 $79,000 $19,000 F -$110,000 $126,500 $16,500 12.00% 20.00% 16.00% 8.00% 15.00% 11.00% 1.25 1.60 1.45 0.90 1.32 1.15 PI 1.45 1.60 Ranking by NPV Project Initial Investment PV of Inflows NPV IRR C $100,000 $145,000 $45,000 B -$70,000 $112,000 $42,000 A -$80,000 $100,000 $20,000 E -$60,000 $79,000 $19,000 F -$110,000 $126,500 $16,500 D -$40,000 $36,000 -$4,000 Investment NPV $100,000 $45,000 $170,000 $87,000 $250,000 $107,000 16.00% 20.00% 12.00% 15.00% 11.00% 8.00% 1.25 1.32 1.15 0.90 PI Ranking by IRR or PL Project Initial Investment PV of Inflows NPV IRR B -$70,000 $112,000 $42,000 C -$100,000 $145,000 $45,000 E -$60,000 $79,000 $19,000 A -$80,000 $100,000 $20,000 -$110,000 $126,500 $16,500 D -$40,000 $36,000 -$4,000 Investment NPV $70,000 $42,000 $170,000 $87,000 $230,000 $106,000 20.00% 16.00% 15.00% 12.00% 11.00% 8.00% 1.60 1.45 1.32 1.25 1.15 0.90