Question $720$ Marks

Imperial Systems has R$1$ million available for capital investments during the current year. A list

of possible investment projects, together with their net investments and net present values, is

provided in the following table:

Project Initial Investment Net Present Value

$1$ R$200000$ R$20000$

$2$ R$500000$ R$41000$

$3$ R$275000$ R$60000$

$4$ R$150000$ R$5000$

$5$ R$250000$ R$20000$

$6$ R$100,000$ R$40000$

$7$ R$275000$ R$22000$

$8$ R$200000-$R$18000$

$7\mathrm{.}1.$ Rank the various investment projects in terms of their profitability indexes $($calculate to

three decimal places$).(8)$

$7\mathrm{.}2.$ In order of decreasing profitability index values and considering the capital constraints,

which projects should be adopted? Are all capital funds expended? $(5)$

$7\mathrm{.}3.$ Is there another combination that produces a higher aggregate net present value than

the one developed in part $6\mathrm{.}2?(5)$

$7\mathrm{.}4.$ If less than the entire amount of available funds is invested, what is the opportunity

cost of unused funds? $(2$Question $7$

$20$ Marks

Imperial Systems has R$1$ million available for capital investments during the current year. A list

of possible investment projects, together with their net investments and net present values, is

provided in the following table:

$7\mathrm{.}1.$ Rank the various investment projects in terms of their profitability indexes $($calculate to

three decimal places$).$

$7\mathrm{.}2.$ In order of decreasing profitability index values and considering the capital constraints,

which projects should be adopted? Are all capital funds expended?

$7\mathrm{.}3.$ Is there another combination that produces a higher aggregate net present value than

the one developed in part $6\mathrm{.}2?$

$7\mathrm{.}4.$ If less than the entire amount of available funds is invested, what is the opportunity

cost of unused funds?