Question
Galaxy Satellite Co. is attempting to select the best group of independent projects competing for the firm's fixed capital budget of $10,000,000. Any unused portion
Galaxy Satellite Co. is attempting to select the best group of independent projects competing for the firm's fixed capital budget of $10,000,000. Any unused portion of this budget will earn less than its 20 percent cost of capital. A summary of key data about the proposed projects follows.
| Project | PV of Inflows | Initial Investment | IRR | |
| A | $3,050,000 | $3,000,000 |
| 21% |
| B | $9,320,000 | $9,000,000 |
| 25% |
| C | $1,060,000 | $1,000,000 |
| 24% |
| D | $7,350,000 | $7,000,000 |
| 23% |
Which projects should the firm implement based on your analysis of both techniques (NPV and IRR) and given the capital rationing amount? Write an email to your boss, Andy Fast, the CFO, explaining your rationale proving the choices based on the considerations of shareholder value and the maximum investment budget. Keep in mind that you are less concerned with using the whole budget than with maximizing the total return to Galaxy satellite.
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Multinational Business Finance
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
13th edition
132743469, 978-0132743464
