Capital budgeting Note: All cash amounts are in $millions. Cash outflows in various years, NPV of projects Project 1 Project 2 Project 3 Project 4 Project 5 Project 6 Project 7 Year 1 $3 $1 $4 $6 $5 $4 $2 Year 2 $4 $3 $4 $5 $1 $5 $3 Question 8 (12 points): You are given a group of possible investment projects for your company's capital. For each project you are given the the NPV the project should add to the firm (see data on the left), as well as the cash infusion required for each project during each year. Given the information, determine the investments that maximize the firm's NPV. The firm's CFO has approved $25 million available for capital investments in each of the next 4 years. Also, (a) at most two of projects 1, 2 and 3 should be chosen, b) at least one of project 3 or project 7 must be chosen, and c) if project 1 is chosen, then project 4 must also be chosen. Year 3 $3 $2 $3 $2 $2 $1 $3 Year 4 $1 $1 $2 $2 $3 $5 3 $4 Assume that if a project is selected that it must/will be funded for all 4 years. NPV $30 30 $25 $35 $40 $42 $20 $30 What would happen if unused capital from any year is available to invest in subsequent years, if needed? Projects to be selected (6 points) Maximum NPV (3 points) Capital used each year (2 points) Unused capital avail future years (1 points)