Principles of Managerial Finance (14th Edition) - Chapter 12, Question #19P

Capital rationing: NPV approach

A 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.

Project	Initial Investment	NPC @ 13% cost of capital
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	$160,000