Question
Question MSC is evaluating the following projects for next years capital program: Project Initial investment (Rands) Length in years Annual cash flow (Rands) A 3,000,000.00
Question MSC is evaluating the following projects for next years capital program:
| Project | Initial investment (Rands) | Length in years | Annual cash flow (Rands) |
| A | 3,000,000.00 | 6 | 720,000.00 |
| B | 3,500,000.00 | 5 | 980,000.00 |
| C | 4,000,000.00 | 7 | 905,000.00 |
| D | 5,000,000.00 | 4 | 1,720,000.00 |
| E | 6,000,000.00 | 6 | 1,510,000.00 |
| F | 7,000,000.00 | 5 | 1,950,000.00 |
| G | 8,000,000.00 | 7 | 1,730,000.00 |
Projects A and B are mutually exclusive and so are Projects D and E. MSC has a 12% cost of capital and a maximum of R15 million to spend on capital projects next year.
Required Use capital rationing to determine which projects should be included in MSCs capital program. (15 Marks)
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Capital Markets Institutions And Instruments
Authors: Frank J. Fabozzi, Franco Modigliani
2nd Edition
0133001873, 978133001877
