Question 1 [15]

The Rainbow Products Company is considering investing in six projects with similar risks. The main challenge is the limited funds. The projects are independent, and the initial costs and present values associated with them are shown below.

Project	P	Q	R	S	T	V
Initial cost (R)	16 000	8 500	5 600	4 200	2 300	1 250
Present value (R)	21 500	12 300	7 600	6 500	3 800	2 050

1.1. Calculate the NPV and profitability index for each project. [8]

1.2. Under capital rationing, which projects should be selected, assuming a total budget of R26 000 to maximise the NPV? [7]