Question 3 (30 marks) The finance director of Global Manufacturing Company asked you to evaluate the following potential capital projects for its plant in Shenzhen for the year 2020. Global's cost of capital is 10% However, the company has only budgeted for a total of $12,000,000 for its Shenzhen plant. The projects are not divisible and may not be postponed until a future period. All projects are of similar risk to the company's existing investments. Expected Net Cash Inflows (5,000) Project Initial Outlay (5.000) Year 1 Year 2 1 2,000 1,800 2 4,000 2,200 3,200 4,000 3,000 1,800 6,000 4,000 5,200 6,000 3,600 4,200 2,000 2,200 Required: Calculate the net present value and the profitability index (i.e. PV of benefits divided by initial outlay) of the 6 projects. You can round your calculations of the NPV to thousand dollars. (12 marks) 800 4 800 a. b. Which projects should be selected subject to the constraint imposed and what is the value created by accepting these projects? How much does the capital budget limit cost the company in terms of its market value? (8 marks) List two situations in which a company would impose capital rationing for its division even though it may reduce the market value of the company. Suggest better ways to handle these situations that lead to capital rationing. (10 marks) c. END