A company is considering the following investment opportunities.
Investment
Investment A B C
Initial Cost ($millions) $5.5 $3.0 $2.0
Expected Life 10 yrs 10 yrs 10 yrs
NPR @15% $340,000 $300,000 $200,00
IRR 20% 30% 40%
Q1. If the company can raise large amount of money at an annual cost of 15 percent, and the investments are independent of one another, which should it undertake?
Q2. If the company can raise large amount of money at an annual cost of 15 percent, and the investments are mutually exclusive, which should it undertake?
Q3. If the company has fixed capital budget of $5.5 million, and if the investments are independent of one another, which should it undertake?