Question
Capital Rationing and Investment Prioritization : A company has a limited capital budget of $1,000,000 and several investment projects with the following initial investments and
Capital Rationing and Investment Prioritization: A company has a limited capital budget of $1,000,000 and several investment projects with the following initial investments and net present values (NPVs):
Project A: Initial investment of $300,000, NPV of $200,000. Project B: Initial investment of $400,000, NPV of $300,000. Project C: Initial investment of $500,000, NPV of $400,000.
Using the NPV method, prioritize the investment projects within the capital budget constraint and discuss the rationale for project selection. Analyze the trade-offs between project profitability and capital availability in investment decision-making.
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