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.

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