Question: Your company is considering five projects: Project Initial outlay Profitability index A 6 000 1.2 B 4 000 1.05 C 10 000 1.6 D 8

Your company is considering five projects: Project Initial outlay Profitability index

A 6 000 1.2

B 4 000 1.05

C 10 000 1.6

D 8 000 1.4

E 7 000 1.3

Project C and D are mutually exclusive, and the company has R20 000 available for investment. All projects can only be undertaken once and are divisible.

Required:

1. Which projects should be undertaken to maximise the NPV in the presence of capital constraints? What is the maximum NPV and initial outlay? (10)

2. If all projects can be undertaken, what is the level of NPV and initial outlay?

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