Your company is evaluation 4 independent projects and is subject to capital rationing, detailed as follows:

Project Initial Outlay IRR NPV

1 2 million 18% 2,500,000

2 1 million 15% 950,000

3 1 million 10% 600,000

4 3 million 9% 2,000,000

If you must select projects subject to a budget constraint of 4 million dollars, which set of projects should be accepted so as to maximize firm value?

		2, 3 and 4
		1, 2 and 3
		1 and 4
		1 and 2
		1 only

1. A company is considering a project with the following cash flows:

   Initial Investment = -$200,000

   Cash Flows: Year 1 = $150,000

   Year 4 = $80,000

   Year 5 = $120,000

   If the appropriate discount rate is 12%, what is the NPV of this project?

   		83,117.71
   		43,932.67
   		74,189.14
   		62,482.34
   		52,861.24

A company is considering two equally risky, mutually exclusive projects A and B. The cost of capital is 9%. The CEO wants to use the IRR criterion, while the CFO favors the NPV method. If the CEO's preferred criterion is used, how much value will the firm lose as a result of this decision?

1. Year	Project A	Project B
   0	-$4,000	-$2,000
   1	2,000	1,000
   2	2,100	1,100
   3	2,200	1,200
   4	2,300	1,300

   		1169.87
   		1102.45
   		1239.72
   		1312.13
   		1037.35