3. ABC Corporation has evaluated 6 independent projects to take on next year and obtained the...

  

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3. ABC Corporation has evaluated 6 independent projects to take on next year and obtained the following results (all numbers are in millions of US$): Project A: initial cost = 6; NPV = 8 Project B: initial cost = 5; NPV = 6 Project C: initial cost = 8; NPV = 12 Project D: initial cost = 7; NPV = 10 Project E: initial cost=4; NPV =4 Project F: initial cost = 2; NPV =-1 a. Calculate the amount of the optimal capital budget for the next year. b. If the board of directors decides that only $25 million will be spent on new investment projects next year and no fractional project can be accepted, which projects should be accepted? 3. ABC Corporation has evaluated 6 independent projects to take on next year and obtained the following results (all numbers are in millions of US$): Project A: initial cost = 6; NPV = 8 Project B: initial cost = 5; NPV = 6 Project C: initial cost = 8; NPV = 12 Project D: initial cost = 7; NPV = 10 Project E: initial cost=4; NPV =4 Project F: initial cost = 2; NPV =-1 a. Calculate the amount of the optimal capital budget for the next year. b. If the board of directors decides that only $25 million will be spent on new investment projects next year and no fractional project can be accepted, which projects should be accepted?

Answer rating: 100% (QA)

To determine the optimal capital budget and which projects to accept we can use the Net Present Value NPV criterion The NPV of a project represents th... View the full answer