A company is considering the following investment opportunities. $(1+1$ mark$)$

Investment

A

B

C

Initial cost $($Rs$.$ millions$)$

Rs$\mathrm{.}7\mathrm{.}0$

Rs$\mathrm{.}4\mathrm{.}0$

Rs$\mathrm{.}3\mathrm{.}0$

Expected Life

$10$ yrs

$10$ yrs

$10$ yrs

NPV @ $15\%$

Rs$\mathrm{.}380,000$

Rs$\mathrm{.}300,000$

Rs$\mathrm{.}200,000$

IRR

$20\%$

$30\%$

$40\%$

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

$5$

b$.$ If the company has a fixed capital budget of Rs$\mathrm{.}7$ million, and if the investments are independent of one another, which should it undertake?