Suppose that you are deciding which group of projects to invest in. The firm has $200...
Suppose that you are deciding which group of projects to invest in. The firm has $200 million it can invest and has the following investment opportunities available. What is highest total NPV you can afford? Project Cost/NPV A 60/75 B 100/120 C 50/50 D 50/70 E 40/30. This is all the information given.
Homework Answers
| Project | Project Cost | Net Present Value |
| A | 60 | 75 |
| B | 100 | 120 |
| C | 50 | 50 |
| D | 70 | 70 |
| E | 40 | 30 |
The rate of discounting does not matter. Mutually exclusive projects are given with the final output as NPV and it's cost considerations. We need to maximize the NPV given the budget considerations of the firm. Since the firm has $200 million, it can invest in Project A, B and E at the same time. This will give us the highest NPV at $225 and no other combination would have given such a high NPV.
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