Question
A firm is considering the following projects, all of which are independent of one another. Available funds are limited to SR3 MILLION ONLY in this
A firm is considering the following projects, all of which are independent of one another. Available funds are limited to SR3 MILLION ONLY in this capital budgeting period, but future periods will have no capital budget constraints. Assume that all projects are indivisible and none are mutually exclusive. ACCEPT and REJECT decisions are based on NPV & PI criteria only.
| PROJECT NAME | INITIAL CAPITAL OUTLAY IN SR | TOTAL PRESENT VALUE OF FUTURE FREE CASH FLOWS | NPV | PI | ACCEPT / REJECT |
| EF | SR 500,000 | SR 575,000 | 75,000 | 1.15 | ACCEPT |
| HI | 900,000 | 1,044,000 |
|
|
|
| JK | 800,000 | 109,090 |
| ACCEPT | |
| MN | 300,000 |
| 50,000 | 1.17 | ACCEPT |
| PQ | 600,000 | 590,000 | -10,000 | 0.983 |
|
| TU | 700,000 | 900,000 | 200,000 | 1.29 | ACCEPT |
| YZ | 600,000 | 880,000 |
|
| ACCEPT |
A. FILL the shaded areas in the table above with appropriate values and decisions as shown in the PROJECT EF and TU as examples.
B. Base on the capital rationing situation above, RANK the projects that would be accepted using the Profitability Index criterion:
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Better Than Alpha Three Steps To Capturing Excess Returns In A Changing World
Authors: Christopher M. Schelling
1st Edition
1264257651,126425766X
