Ten capital spending proposals have been made to the budget committee as the mem

Question

Ten capital spending proposals have been made to the budget committee as the members prepare the annual budget for their firm. Each independent project has a 5-year life and no salvage value.

If the firm has a MARR of 16% and $35,000 is available, which projects should be approved?

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a. All projects

b. Projects B, C, F, G, H, J and I

c. Projects B, H, I, C and D

d. Projects B, H, and I

Project Initial Cost (thousands) Uniform Annual Benefit (thousands) Rate of Return A $10 $2.98 15% B 15 5.58 25 C 5 1.53 16 D 20 5.55 12 E 15 4.37 14 F 30 9.81 19 G 25 7.81 17 H 10 3.49 22 I 5 1.67 20 J 10 3.20 18

Explanation / Answer

The projects B, H, & I should be selected as they give the highest returns in decending order and they are with in the funds available i.e 15+10+5 =$30 thousands

As the project C is proposed the ROI same as MARR and may not be advised to takeup due to uncertainity involved.

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