FIN220 SEM 181 QUESTION 2 Company RH is considering two investments with 1-year lives. The more expensive of the two is the better and will produce more savings. Assume these projects are mutually exclusive and that the required rate of return is 10 percent. Given the following free cash flows Initial outlay Inflow year 1 PROJECTA -$195,000 240,000 PROJECTB -$1,200,000 1,650,000 A Calculate the NPV for each project. B. Calculate the Pl for each project C. Calculate the IRR for each project D. If there is no capital-rationing constraint, which project should be selected? If there is a capital-rationing constraint, how should the decision be made? Abu Luqman must determine what investment opportunities to undertake for his business Al-Afdhal Corporation. He is limited to a maximum expenditure of SR17,500 only for this capital budgeting period. The available projects with their respective IRR, NPV and PI for Al-Afdhal Corporation ane listed below Initial Capi IRR NFPV Pl 50 1.10 6500 2.30 5500 2.10 5000 1.67 500 1.04 in SR 5001 18% 5000 | 25% 5000| 37% 7500| 20% 12500 | 26% a. ACCORDING TO IRR CRITERIA, which projects would be selected base on the capital b. ACCORDING TO PROFITABILITY INDEX (PI) CRITERIA, which projects would be selected c. From you calculation in A and B, Which set of projects would you choose under this capital rationing constraint above? CALCULATE THE TOTAL NPV VALUE for the selected projects according to this ranking base on the capital rationing constraint above? CALCULATE THE TOTAL NPV VALUE for the selected projects according to this ranking constraint and explain why Page 8of9