Question 2

1. If the firm objective is to maximize value, then soft capital rationing is a sub-optimal strategy.

   True

   False

Given the information in the table below, if management imposes a limit of $500,000 on capital investments, which of the following project combinations should it accept? Assume that the projects are not divisible. NPV ($) Project A IRR (%) 12 13.5 11.1 B C Initial Outlay ($) 100,000 150,000 200,000 200,000 300,000 300,000 12,000 14,000 25,000 26,000 35,000 38,000 D 12.2 E 12.7 12.5 F O Projects B, C and D. O All of the projects. O Projects C, D and A. O Projects E and F O Projects F and D. O Projects F and C