Your company is evaluation 4 mutually exclusive 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 2

1 and 4

1 only