Question 1 SML plc's managers are ambitious and wish to expand their range of activities. They have produced a report for the parent company's board of directors detailing five projects requiring large initial investments. After reading the report, the main board of directors say that they have a policy of permitting subsidiary managers to select investment projects without head office interference. However, they do set a limit on the amount spent in any one period. In the case of SML this limit is to be 110,000 at time 0 for these projects, which if accepted will commence immediately. The five projects are not mutually exclusive, each one can only be undertaken once and they are all divisible. Year 0 (,000) -35 1 (,000) 0 2 (,000) 60 3 (,000) 0 4 (,000) 0 Project 1 Project 2 -50 30 30 30 0 Project 3 -20 10 10 10 10 Project 4 -30 15 15 15 15 Project 5 -60 70 0 0 0 None of the projects lasts more than four years and cash flows are confined to within the four-year horizon. Assume the following: The cost of capital is 10 per cent No tax All cash flows occur on anniversary dates. Answer the following: i) Compute the profitability indices for each of the five projects. (15 marks) ii) Compute the NPV for each of the five projects. (15 marks) iii) What is the optimal allocation of the 110,000? (10 marks)