Valley Corporation is attempting to select the best of a group of independent projects competing for the firm?s fixed capital budget of $4.5 million. The firm recognizes that any unused portion of this budget will earn less than its 15% cost of capital, thereby resulting in a present value of inflows that is less than the initial investment. The firm has summarized, in the following table, the key data to be used in selecting the best group of projects.

a. Use the internal rate of return (IRR) approach to select the best group of projects

b. Use the net present value (NPV) approach to select the best group of projects

c. Compare, contrast, and discuss your findings in parts a and b.

d. Which projects should the firm implement? Why?

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Project A B C D оши E F G Initial investment $5,000,000 800,000 2,000,000 1,500,000 800,000 2,500,000 200,000 IRR Present value of flows at 15% 17% 18 19 16 22 23 20 $5,400.000 1,100,000 2,300,000 1,600,000 900,000 3,000,000 1,300,000 Project A B C D оши E F G Initial investment $5,000,000 800,000 2,000,000 1,500,000 800,000 2,500,000 200,000 IRR Present value of flows at 15% 17% 18 19 16 22 23 20 $5,400.000 1,100,000 2,300,000 1,600,000 900,000 3,000,000 1,300,000

Answer rating: 100% (QA)

The total budget is limited at 45 million a Choose the projects with the highest IRR Project BEFG wi... View the full answer