You have a $10 million capital budget and must make the decision about which investments your firm

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You have a $10 million capital budget and must make the decision about which investments your firm should accept for the coming year. Projects 1, 2, and 3 are mutually exclusive, and Project 4 is independent of all three. The firm€™s cost of capital is 12 %.

a. Use the information on the three mutually exclusive projects to determine which of those three investments your firm should accept on the basis of NPV.
b. Which of the three mutually exclusive projects should the firm accept on the basis of PI?
c. If the three mutually exclusive projects are the only investments available, which one do you select?
d. Now given the availability of Project 4, the independent project, which of the mutually exclusive projects do you accept? (Note: Remember there is a $10 million budget constraint.) Is the better technique in this situation NPV or PI? Why?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...

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a Project 1 NPV 4000000 1000000112 2000000112 2 3000000 112 3 4000000 892857 1594388 2135341 622586 ...View the full answer

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Question Posted: Mar 26, 2015 06:38 AM

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You have a $10 million capital budget and must make the decision about which investments your firm

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a Project 1 NPV 4000000 1000000112 2000000112 2 3000000 112 3 4000000 892857 1594388 2135341 622586 ...View the full answer

Introduction to Corporate Finance What Companies Do

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