Question

The Suboptimal Glass Company uses a process of capital rationing in its decision making. The firm’s cost of capital is 10 percent. It will only invest $50,800 this year. It has determined the internal rate of return for each of the following projects.

Project	Project Size			Internal Rate of Return
A	$	10,200			21	%
B		30,200			11
C		25,200			14
D		10,200			22
E		10,200			20
F		20,200			19
G		10,200			15

a. Pick out the projects that the firm should accept. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

• Project G
• Project C
• Project E
• Project A
• Project D
• Project B
• Project F

b. If Projects A and D are mutually exclusive, which projects would you accept in spending the $50,800? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

• Project D
• Project A
• Project E
• Project B
• Project F
• Project C
• Project G

Answer 1

1.
Project A Accept
Project B Reject
Project C Reject
Project D Accept
Project E Accept
Project F Accept
Project G Reject

2.
Project A Reject
Project B Reject
Project C Reject
Project D Accept
Project E Accept
Project F Accept
Project G Accept