Question
The Herat Company believes it has found 10 projects, of which 7 have positive NPV's given the company's cost of capital. If the company were
The Herat Company believes it has found 10 projects, of which 7 have positive NPV's given the company's cost of capital. If the company were to invest in all of these projects it would require a capital expenditure of $65 million. According to NPV theory, the company should invest in all of these projects, because each has a positive return. The company however, has made the decision to limit its capital expenditure to $40 million. List and briefly discuss 3 practical explanations why the company might forgo these value adding projects.
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