You are in charge of one division of Bigfella Conglomerate Inc. - 4053

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Request Description

You are in charge of one division of Bigfella Conglomerate Inc. Your division is subject to capital rationing. Your division has four indivisible projects available, detailed as follows:

          Project     Initial Outlay    IRR    NPV

             1           2 million      18%   2,500,000

             3           1 million      10%      600,000

             2           1 million               15%      950,000

             4           3 million      9%    2,000,000

If you must select projects subject to a budget constraint of 5 million dollars, which set of projects should be accepted so as to maximize firm value?

a.Projects 1, 2, and 3

b.Project 1 only

c.Projects 1 and 4

d.Projects 2, 3, and 4

 
Solution Description

You are in charge of one division of Bigfella Conglomerate Inc. Your division is subject to capital rationing. Your division has four indivisible projects available, detailed as follows:

          Project     Initial Outlay    IRR       NPV