Your company is considering the following projects:
If the expansion budget is limited at $12 million, which project/projects should the company take?
Projects 2 & 3
Project 1 and 3
I am not given a discount rate for this question.
If we are given a budget and we need to choose 2 projects our goal is to maximize the NPV.
If we opt for Project 1, then we cannot opt for any other project as our budget won't allow to. So, Option C cannot be the answer.
Only project 3 can also not be the answer because we won't be able to utilize our budget efficiently.
Now, comparing Option A and Option B we will opt for Option B because we will get to optimize our budget and can have a higher NPV then we could have got in case of Option A.
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