Question: Hawk plc has the following projects in which it can invest: Project Cash outflow at t=0, m Present value at t=0 of cash inflows, m

Hawk plc has the following projects in which it can invest:

Project

Cash outflow at t=0, m

Present value at t=0 of cash inflows, m

NPV at t=0, m

A

10

19

9

B

13

38

25

C

3.8

7.3

3.5

D

5.0

9.9

4.9

E

4.8

7.1

2.3

Hawk has no other investment opportunities. Projects C and D are mutually exclusive. The capital investment budget at t=0 is limited to 25 million. Hawk plc is committed to maximising the wealth of its shareholders.

How should Hawk utilise its capital investment budget if:

  1. all projects are divisible (can be scaled down)? (4 marks)
  2. all projects are indivisible? (4 marks)

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