A firm utilizes a strategy of capital rationing, which is currently $250,000 and

Question

A firm utilizes a strategy of capital rationing, which is currently $250,000 and is considering the following 2 projects: Project A has a cost of $150,000 and the following cash flows: year 1 $30,000; year 2 $110,000; and year 3 $100,000. Project B has a cost of $225,000 and the following cash flows: year 1 $120,000; year 2 $90,000; year 3 $50,000; and year 4 $50,000. Using a 12% cost of capital, which decision should the financial manager make? A) Select project A B) Select project B C) Do not select either project D) Select both projects

Explanation / Answer

C) Do not select either projec

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