Meds R Us has just finished evaluating several projects. Their cost of capital is 10%. NPVs are calculated by the firms current cost of capital. Show your work

Project Cost NPV IRR A $ 3,000 $-1,000 9% B $14,000 $ 4,000 17% C $15,000 $ 2,000 12% D $17,000 $ 4,000 16% E $21,000 $ 5,000 11%

a. With no capital rationing, and assuming the projects are of the same risk, which projects should Meds R Us accept? Why? B.

b.If Meds R Us has a Capital Budget limit of $40,000, and assuming the projects are of the same risk, which projects should they accept? Why?

c. Meds R Us now performs a risk assessment of the projects. They adjust for project risk by raising the calculated IRR by 2% for low risk projects, leaving the IRR the same for moderate risk projects, and lowering the calculated IRR by 3% for high risk projects. Without capital rationing, and given their cost of capital of 10%, which projects should Meds R Us accept? Why?

Risk Project Cost NPV IRR Level A $ 3,000 $-1,000 9% Low B $14,000 $ 4,000 17% Low C $15,000 $ 2,000 12% High D $17,000 $ 4,000 16% Ave. E $21,000 $ 5,000 11% High D.Considering the risk assessment in Part C above, if Meds R Us has a Capital Budget limit of $40,000, which projects should they accept? Why?