The Suboptimal Glass Company uses a process of capital rationing in its decision making. The firm's cost of capital is 13 percent. It will only invest $60,000 this year. It has determined the internal rate of return for each of the following projects.
Internal Rate
Project Project Size of Return
A........... $10,000 15%
B........... 30,000 14
C........... 25,000 16.5
D........... 10,000 17
E........... 10,000 23
F........... 20,000 11
G.......... 18,000 16
a. Pick out the projects that the firm should accept.
b. If projects D and E are mutually exclusive, how would that affect your overall answer? That is, which projects would you accept in spending $60,000?