Question

The table below lists the independent projects that your company is considering to invest:

Project	Initial investment (USD)	NPV (USD)	IRR (%)
A	200000	52131	9.23
B	410000	48192	8.95
C	290000	-24690	7.47
D	320000	75239	9.49
E	510000	51693	9.24
F	260000	68092	9.54
G	220000	49171	9.64

The required return is 8.1 percent. If there is an investment budget ceiling of $1,000,000, what is the total net present value of investment opportunuties missed (the sum of NPVs of the feasible projects that your company couldn't invest) due to budget limit?

		99885
		51693
		126932
		127370
		103824

Answer 1

Select the Projects which gives higher NPV

Option	Projects Selected	Capoital Invested	NPV	Ranking
A	G,F,D,A	$ 10,00,000.00	$   2,44,633.00	1
B	G, F, E	$   9,90,000.00	$   1,68,956.00	3
C	G,F, B	$   8,90,000.00	$   1,65,455.00	4
D	D,E	$   8,30,000.00	$   1,26,932.00	6
E	D,B,A	$   9,30,000.00	$   1,75,562.00	2
F	E,B	$   9,20,000.00	$   1,52,016.00	5

Now Project is selecting Projects G, F, D, A and Loosing Projects due to budget Limit are B,E

As C has -ve NPV, It will always rejected.

NPV of B& E is [ 48192+ 51693 ]

= $ 99,885

OPtion A is correct.