Capital

rationingNPV

approachA firm with a

12.9%

cost of capital must select the optimal group of projects from those shown in the following table, given its capital budget of

$1.00

million.

Project	Initial investment		NPV at 12.9% cost of capital
A	$200,000		$88,000
B	300,000		10,000
C	100,000		22,000
D	600,000		90,000
E	500,000		65,000
F	200,000		58,000
G	700,000		157,000

a. Calculate the present value of cash inflows associated with each project.

b. Select the optimal group of projects, keeping in mind that unused funds are costly.

Question content area bottom

Part 1

a. Calculate the present value of cash inflows associated with each project.

The present value of cash inflows for project A is

$enter your response here.

(Round to the nearest dollar.)

Part 2

The present value of cash inflows for project B is

$enter your response here.

(Round to the nearest dollar.)

Part 3

The present value of cash inflows for project C is

$enter your response here.

(Round to the nearest dollar.)

Part 4

The present value of cash inflows for project D is

$enter your response here.

(Round to the nearest dollar.)

Part 5

The present value of cash inflows for project E is

$enter your response here.

(Round to the nearest dollar.)

Part 6

The present value of cash inflows for project F is

$enter your response here.

(Round to the nearest dollar.)

Part 7

The present value of cash inflows for project G is

$enter your response here.

(Round to the nearest dollar.)

Part 8

b. Select the optimal group of projects, keeping in mind that unused funds are costly.(Select the best choice below.)

A.

Select projects C, F and G.

B.

Select projects A, C, E and F.

C.

Select projects D and C.

D.

Select projects A, B and E.