Q2:

(A) Your firm has 6 independent project proposals. The NPV and initial capital requirements for each of the projects are given below. Will you choose the project with the highest NPV? Why or why not? Your firms capital budget is $100 million. Show all calculations and explain your answer.

Project number	Initial capital requirement (million$)	NPV
1	60	60
2	20	21
3	40	48
4	20	22
5	40	42
6	20	20.5

(B) Is it unrealistic that financing costs are ignored in capital budgeting? Why or why not?