Problem: A company is considering the following investment opportunities (ABC)
Investment Initial cost NPV@15% Expected life IRR
A. $5,500,000 340,000 10 years 20%
B. $3,000,000 300,000 10 years 30%
C. $2,000,000 200,000 10 years 40%
Q1. If the company can raise large amounts of money at an annual cost of 15%, and if the investments are independent of one another, which should it undertake?
Q2. If the company can raise large amounts of money at an annual cost of 15%, and if the investments are mutually exclusive, which should it undertake?
Q3. If the company has a fixed capital budget of $5.5 million, and if the investments are independent of one another, which should it undertake?