A pharmaceutical company has R1 million allocated for the following capital projects: Project Investment (R'000) NPV...

 

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A pharmaceutical company has R1 million allocated for the following capital projects: Project Investment (R'000) NPV (R'000) 1 300 66 2 200 -4 3 250 43 4 100 14 5 100 7 6 350 63 7 400 48 The opportunity cost of capital for each project is 11% Required: 1.1. Which projects should the company accept to stay within the R1 million budget? (7) 1.2. What is the maximum net present value for the R1 million budget? 1.3. How much does the budget limit cost the company in terms of market value? 1.4. What is the cost of the capital rationing constraint? N2N2 (2) (3) (2) A pharmaceutical company has R1 million allocated for the following capital projects: Project Investment (R'000) NPV (R'000) 1 300 66 2 200 -4 3 250 43 4 100 14 5 100 7 6 350 63 7 400 48 The opportunity cost of capital for each project is 11% Required: 1.1. Which projects should the company accept to stay within the R1 million budget? (7) 1.2. What is the maximum net present value for the R1 million budget? 1.3. How much does the budget limit cost the company in terms of market value? 1.4. What is the cost of the capital rationing constraint? N2N2 (2) (3) (2)

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11 To determine which projects the company should accept to stay within the R1 million budget we will compare the total investment cost of each project to the available budget Given Available budget R... View the full answer