Question: Project A Project B Project C Project D Project E High Risk Average Risk Low risk Average Risk High Risk Year 0 (3,000,000) (2,250,000) (1,500,000)
| Project A | Project B | Project C | Project D | Project E | |
| High Risk | Average Risk | Low risk | Average Risk | High Risk | |
| Year 0 | (3,000,000) | (2,250,000) | (1,500,000) | (1,750,000) | (2,750,000) |
| Year 1 | 850,000 | 400,000 | 200,000 | 450,000 | 500,000 |
| Year 2 | 900,000 | 500,000 | 400,000 | 500,000 | 700,000 |
| Year 3 | 950,000 | 700,000 | 500,000 | 550,000 | 950,000 |
| Year 4 | 1,050,000 | 800,000 | 600,000 | 650,000 | 1,000,000 |
A health care organization is considering its capital budget for the coming year. Five projects are under consideration. The project costs, cash flows and risks are included in the attached spreadsheet (Capital Rationing tab). The capital budget is $6 million. The corporate cost of capital is 4.75%; for high-risk projects they add 2.25% and for low-risk projects they deduct 1.75%. Management uses the Profitability Index to rank projects. Given this information, which projects would you recommend the organization undertake?
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