This problem tests your understanding of the chapter appendix. A company is considering the following investment opportunities.

Investment A B C Initial cost ($ millions) 5.5 3.0 2.0 Expected life 10 yrs 10 yrs 10 yrs NPV @ 15% $340,000 $300,000 $200,000 IRR 20% 30% 40%

a. If the company’s capital budget is large enough to undertake any or all of these investments, and if the investments are independent of one another, which should it undertake?

b. If the company’s capital budget is large enough to undertake any or all of these investments, and if the investments are mutually exclusive, which should it undertake?

c. Considering only these three investments, if the company has a fixed capital budget of $5.5 million, and if the investments are independent of one another, which should it undertake? LO.1