Problem:
The manufacturing department of Holmes Manufacturing Company must choose from six capital budgeting proposals outlined below. The department is subject to capital rationing and it has a budget ceiling of 1,000,000. The company's cost of capital is 15%. Using the criteria of IRR and NPV below, which projects should the department choose?
Project Initial Cost IRR NPV
1 $200,000 19% $100,000
2 $400,000 17% 20,000
3 $250,000 16% 60,000
4 $200,000 12% -5,000
5 $150,000 20% 50,000
6 $400,000 15% 150,000