Question: Company A has three projects (C, D and E) which show positive NPV. But Company does not have enough money to invest in all three
- Company A has three projects (C, D and E) which show positive NPV. But Company does not have enough money to invest in all three projects. So, it decides by the management to know which project increases financial position of the company.
| Particulars | Initial investment | Cash inflows (OMR) 1st year | Cash inflows (OMR) 2nd year | Cash inflows (OMR) 3rd year | Risk free rate | Risk premium |
| Project C | 56, 000 | 25, 000 | 10, 000 | 15, 000 | 2% | 5% |
| Project D | 50, 000 | 32, 000 | 12, 000 | 41, 000 | 2% | 4% |
| Project E | 85, 000 | 12, 000 | 30, 000 | 53, 000 | 3% | 7% |
Required:
Calculate NPV with risk-adjusted discount rate and give your recommendation to the company management.
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