Mace Ltd is planning its capital budget for 19_7 and 19_8. The companys directors have reduced their
Question:
Mace Ltd is planning its capital budget for 19_7 and 19_8. The company’s directors have reduced their initial list of projects to five, the expected cash flows of which are set out below:
Project | 19_7 | 19_8 | 19_9 | 19_0 | NPV |
1 | 60,000 | 30,000 | 25,000 | 25,000 | 1,600 |
2 | 30,000 | 20,000 | 25,000 | 45,000 | 1,300 |
3 | 40,000 | 50,000 | 60,000 | 70,000 | 8,300 |
4 | 0 | 80,000 | 45,000 | 55,000 | 900 |
5 | 50,000 | 10,000 | 30,000 | 40,000 | 7,900 |
None of the five projects can be delayed and all are divisible. Cash flows arise on the first day of the year. The minimum return required by shareholders of Mace Ltd is 10 percent p.a. Which projects should Mace Ltd accept if the capital available for investment is limited to £100,000 on 1 January 19_7, but readily available at
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt