Assume management's job is to maximize firm value by pursuing as many positive NPV projects as the companys total budget allows. The companys total budget of $9000 comes from $5000 of cash on hand and a revolving credit line of $4000 (if management chooses to use it).

Management has identified five projects (I,II,III,IV,V) with the following characteristics:

	Initial Outlay	NPV	# of FCFs	Cost Capital	FCFs	Profitability Index (PI)	IRR
Project I	$3,300	$900	6	25.0%	$1,423	1.27	36.4%
Project II	$2,000	$800	6	25.0%	$949	???	41.5%
Project III	$1,800	$500	6	25.0%	???	???	36.6%
Project IV	$1,200	$400	6	25.0%	$542	???	38.9%
Project V	$800	$(50)	6	25.0%	$254	???	22.2%

• Example: Project I will use $3300 of the companys total budget if accepted. The project produces equal Future Cash flows of $1,423 and the end of every year for the next six years. The projects NPV is $800 using a 25% discount rate.

Widget Co. has 3 operating segments (Alpha, Beta, Gamma) and management uses in a soft capital rationing system that limits how much each segment can spend:

	Max Budget
Alpha	$4500
Beta	$2500
Gamma	$2000

• For example, Alpha segment can spend up to $4500

Each segment has different manufacturing capabilities and can only complete certain projects:

	Alpha	Beta	Gamma
Project I	Yes	No	No
Project II	Yes	No	No
Project III	Yes	Yes	No
Project IV	No	Yes	Yes
Project V	No	Yes	Yes

• For example, the Alpha segment has the manufacturing capability to complete Projects I,II,& III, but not Projects IV or V
• A segments can pursue multiple projects if the segments budget allows for it
• A project can only be completed by any segment one time

Project IIIs Future Cash Flows are forecasted to be closest to:

$169

$542

$610

$779

$812