The finance director of Park plc is preparing financial plans and different departments have submitted a number

Question:

The finance director of Park plc is preparing financial plans and different departments have submitted a number of capital investment applications. The managing director has said that no more than £1m is available for new investment projects. Cash-flow forecasts from the capital investment applications are as follows:

The cost of capital of Park plc is 15 per cent per year.

(a) Determine the optimum investment schedule and the net present value of the optimum investment schedule, if investment projects are divisible but not repeatable.

(b) Determine the optimum investment schedule and the net present value of the optimum investment schedule, if investment projects are not divisible and not repeatable.

(c) Discuss the reasons why the managing director of Park plc may have limited the funds available for new investment projects at the start of the next financial year, even if this results in the rejection of projects which may increase the value of the company.

Net Present Value
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