Consider the following list of projects: A 135,000 6,000 B 200,000 30,000 C 125,
ID: 2817931 • Letter: C
Question
Consider the following list of projects:
A
135,000
6,000
B
200,000
30,000
C
125,000
20,000
D
150,000
2,000
E
175,000
10,000
F
75,000
10,000
G
80,000
9,000
H
200,000
20,000
I
50,000
4,000
Assume that your capital is constrained, so that you only have $500,000 available to invest in projects. If you invest in the optimal combination of projects given your capital constraint, then the total NPV for all the projects you invest in will be closest to:
$111,000
$80,000
$58,000
$69,000
Project Investment NPVA
135,000
6,000
B
200,000
30,000
C
125,000
20,000
D
150,000
2,000
E
175,000
10,000
F
75,000
10,000
G
80,000
9,000
H
200,000
20,000
I
50,000
4,000
Explanation / Answer
To select the projects which maximize the NPV, we should select the projects which have a lower cost and higher NPV which can be found out using the ratio (NPV/Investment)
Projects to invest in - B, C, F, and G. (These projects have the highest NPV to Investment ratio)
NPV = 55000
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