A firm must choose from six capital budgeting proposals outlined below. The firm is subject to...

A firm must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing, has a capital budget of $1,000,000 and the firm’s cost of capital is 15 percent. Using the net present value approach to ranking projects, which projects should the firm accept?

Projects:	1	2	3	4	5	6
Initial Investment	$200,000	$400,000	$250,000	$200,000	$150,000	$400,000
IRR	14%	12%	10%	15%	12%	12%
NPV	$100,000	$20,000	$60,000	$(5,000)	$50,000	$150,000

1, 3, 5, and 6
1, 2, 3, 4, and 5
2, 3, 4, and 5
1, 3, 4, 5 and 6

Expert Solution

Answer:1, 3, 5, and 6

We have 10,00,000 to invest.

Using the net present value approach to ranking projects, higher NPV shall accepted first, project with -ve NPV should be rejected. Hence reject project 4.

Here NPV based ranking is as follows

Ranking	Project	initial investment
1	6	4,00,000
2	1	2,00,000
3	3	2,50,000
4	5	1,50,000
5	2	4,00,000

Even though project 2 has +ve NPV we cant accept it as we had only 10 lakhs to invest.

jeff jeffy answered 8 months ago

A film must choose from six capital budgeting proposals outlined below.

1718A film must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of $1,000,000, the firm's cost of capital is 15 percent. A firm must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of $1.000.000, the few's cost of capital is 15 percentThe internal rate of return assumes that intermediate cash inflows are invested at a rate...

The Capital Budgeting Projects She must choose one of the four capital budgeting projects listed below: ...

The Capital Budgeting Projects She must choose one of the four capital budgeting projects listed below: Table 1 t A B C D 0 (19,500,000) (21,000,000) (16,500,000) (18,000,000) 1 7,500,000 6,500,000 5,200,000 7,500,000 2 7,500,000 7,200,000 5,200,000 5,800,000 3 5,000,000 8,000,000 6,300,000 4,400,000 4 3,500,000 3,000,000 5,900,000 4,500,000 Risk Average Average High Low Table 1 shows the expected after-tax operating...

Please study the following capital budgeting project and then provide explanations for the questions outlined below:...

Please study the following capital budgeting project and then provide explanations for the questions outlined below: You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $2.1 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company...

Q2: Problem 8: Capital Budgeting – 0,1 variable Spencer Enterprises must choose among a series of...

Q2: Problem 8: Capital Budgeting – 0,1 variable Spencer Enterprises must choose among a series of new investment alternatives. The potential investment alternatives, the net present value of the future stream of returns, the capital requirements, and the available capital funds over the next three years are summarized as follows: Alternative Net Present Value ($) Capital Requirements ($) Year 1 Year 2 Year 3 Limited warehouse expansion 4,000 3,000 1,000 4,000 Extensive warehouse expansion 6,000 2,500 3,500 3,500 Test market...

1. Define Multinational capital budgeting and roles of Proxy firm in multinational capital budgeting?

10a- Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The...

10a- Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The board of directors wants to know the expected impact on shareholder wealth. Knowing that the estimated impact on shareholder wealth equates to net present value (NPV), you use your handy calculator to compute the value. What is the project's NPV? Assume that the cash flows occur at the end of each year. The discount rate (i.e., required rate of return, hurdle rate) is 14.4%....

6a- Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The...

6a- Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The board of directors wants to know the expected impact on shareholder wealth. Knowing that the estimated impact on shareholder wealth equates to net present value (NPV), you use your handy calculator to compute the value. What is the project's NPV? Assume that the cash flows occur at the end of each year. The discount rate (i.e., required rate of return, hurdle rate) is 15.2%....

1A) Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The...

1A) Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The board of directors wants to know the expected impact on shareholder wealth. Knowing that the estimated impact on shareholder wealth equates to net present value (NPV), you use your handy calculator to compute the value. What is the project's NPV? Assume that the cash flows occur at the end of each year. The discount rate (i.e., required rate of return, hurdle rate) is 14.5%....

Consider a capital budgeting example with five projects from which to select. The firm needs to...

Consider a capital budgeting example with five projects from which to select. The firm needs to decide how to allocate its available capital based upon the combination of the five projects to maximize returns (based upon net present value (NPV)). The firm has 800 thousand dollars in capital to allocate. • Project 1 costs 100 thousand dollars with NPV at 35 thousand dollars • Project 2 costs 200 thousand dollars with NPV at 80 thousand dollars • Project 3 costs...

Business people point out that the documentation for capital budgeting proposals is often quite impressive. Cash...

Business people point out that the documentation for capital budgeting proposals is often quite impressive. Cash flows are projected down to the last thousand dollars (or even the last dollar) for each year (or even each month). Opportunity costs and side effects are handled quite properly. When a high net present value appears at the bottom, one’s temptation is to say yes immediately. Nevertheless, the projected cash flow often goes unmet in practice, and the firm ends up with a...

Question