P1228 Capital rationing: NPV approachA firm with a 13% cost of capital must select the optimal group of projects from those shown in the following table, given its capital budget of $1 million.

A) Calculate the present value of cash inflows associated with each project.

B) Select the optimal group of projects, keeping in mind that unused funds are costly.

\begin{tabular}{c|c|c} \hline Project & Initial investment & NPV at 13\% cost of capital \\ \hline A & $300,000 & $84,000 \\ B & 200,000 & 10,000 \\ C & 100,000 & 25,000 \\ D & 900,000 & 90,000 \\ E & 500,000 & 70,000 \\ F & 100,000 & 50,000 \\ G & 800,000 & 180,000 \\ \hline \end{tabular}