Dorothea MacKeller has a number of possible projects to invest in. She has been advised by her bank that she has a hard capital ration of $20,000.

She has provided you with the following information:

Year

Project A

Project B

Project C

Project D

0

$ (5,000.00)

$ (8,000.00)

$ (10,000.00)

$(14,000.00)

1

$15,000.00

$6,000.00

$7,000.00

$11,000.00

2

$9,000.00

$5,000.00

$8,000.00

$12,000.00

3

$10,000.00

$11,000.00

$16,000.00

$19,000.00

4

$7,000.00

$12,000.00

$9,000.00

$7,000.00

The discount rate is 18%

Which combination of projects should they invest in based on profitability index (3 Marks)?

Answer:Answer

A Only

B Only

C only

D only

A&B

A&C

A&D

B&C

B&D

C&D

Which single project should be invested in based on NPV (2 Marks)?

Answer:Answer:Answer

A

B

C

D