You work for a firm that has limited access to capital markets. As a consequence, it has only $20 million available for new investments this year. The firm does have a ready supply of good projects, and you have listed all the projects.

a. Based on the profitability index, which of these projects would you take?
b. Based on the IRR, which of these projects would you take?
c. Why might the two approaches give you different answers?

Transcribed Image Text:

Initial Investment (million) NPV (million) Project IRR(%) $10 %5 $15 $10 %5 $3 $2.5 $4 $4 $2 21 28 19 24 20 IV