Question
A firm must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of $1,000,000;
A firm must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of $1,000,000; the firm's cost of capital is 15 percent.
| Project | Initial Investment | IRR | NPV |
|---|---|---|---|
| 1 | $200,000 | 19% | $100,000 |
| 2 | 400,000 | 17 | 20,000 |
| 3 | 250,000 | 16 | 60,000 |
| 4 | 200,000 | 12 | -5,000 |
| 5 | 150,000 | 20 | 50,000 |
| 6 | 400,000 | 15 | 150,000 |
10) Using the internal rate of return approach to ranking projects, which projects should the firm accept?
11) Using the net present value approach to ranking projects, which projects should the firm accept?
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ANSWER 10 In general the company should choose all the projects where its IRR is more than or equal ...
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Basic Finance An Introduction to Financial Institutions Investments and Management
Authors: Herbert B. Mayo
10th edition
1111820635, 978-1111820633
