FIN220 SEM 191 QUESTION 4 The Sala Corporation is considering purchasing one of two new equipment for the upcoming year. The more expensive of the two is better and will produce a higher yield. 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 PROJECT A -$500 700 PROJECTE -55,000 6,000 a. Calculate the NPV of each project. b. Calculate the Pl of each project. c. 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? QUESTION 5 Abu Luqman must determine what investment opportunities to undertake for his business Al Afdhal Corporation. He is limited to a maximum expenditure of SR 17.500 only for this capital budgeting period. The available projects with their respective IRR, NPV and PI for Al-Afdhal Corporation are listed below: Project IRR NPV PI Initial Capital Outlay in SR 500 5000 5000 7500 12500 C 18% 25% 37% 20% 26% 50 6500 5500 5000 500 1.10 2.30 2.10 1.67 1.04 a. ACCORDING TO IRR CRITERIA, which projects would be selected base on the capital rationing constraint above? CALCULATE THE TOTAL NPV VALUE for the selected projects according to this ranking b. ACCORDING TO PROFITABILITY INDEX (PI) CRITERIA, which projects would be selected base on the capital rationing constraint above? CALCULATE THE TOTAL NPV VALUE for the selected projects according to this ranking c. From you calculation in A and B. Which set of projects would you choose under this capital constraint and explain why