I need the following problem solved, with work shown in excel. Imperial Systems

Question

I need the following problem solved, with work shown in excel.

Imperial Systems has $1 million available for capital investments during the current year. A list of possible investment projects, together with their net investments and net present values, is provided in the following table:
Project Net Investment Net Present Value
1 $200,000 $20,000
2 500,000 41,000
3 275,000 60,000
4 150,000 5,000
5 250,000 20,000
6 100,000 4,000
7 275,000 22,000
8 200,000 18,000
a. Rank the various investment projects in terms of their profitability indexes (computed to three decimal places).
b. In the order of decreasing profitability index values and considering the capital constraints, which projects should be adopted? Are all capital funds expended?
c. Is there another combination that produces a higher aggregate net present value than the one developed in part b?
d. If less than the entire amount of available funds is invested, what is the opportunity
cost of the unused funds?

Explanation / Answer

a.) 3,1,8,2,5,7,6,4 Project Net Investment NPV P Index 3 $275,000.00 $60,000.00 0.218181818 1 $200,000.00 $20,000.00 0.1 8 $200,000.00 $18,000.00 0.09 2 $500,000.00 $41,000.00 0.082 5 $250,000.00 $20,000.00 0.08 7 $275,000.00 $22,000.00 0.08 6 $100,000.00 $4,000.00 0.04 4 $150,000.00 $5,000.00 0.033333333 b.) They should accept Projects 3,1 & 8. It will consume $675,000.00 and leave the fund with $325,000.00, while generating NPV of $98,000.00. c.) The best combination is accepting Projects 3, 1, 8 & 5. It will consume $925,000.00 and leave the fund with $75,000.00, while generating NPV of $118,000.00. d.) The opportunity cost is whatever the discount rate used for NPV calculations applied to the unused funds.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.