Problem:
Tiger plc has the following projects:
Projects Initial Investment, £ NPV (after tax)
A 100,000 15,000
B 150,000 18,000
C 75,000 7,000
D 50,000 6,500
The company has only £250,000 available at year 0. There is no other investment opportunity for the firm with any spare cash which is not invested in the above 4 projects.
i. Assume that all projects above are infinitely divisible. Explain, with supporting calculations, which projects the company should choose to maximize its value? What is the optimal NPV of the investment plan?
ii. Would you advice to the management be different if these projects are not infinitely divisible? What would be the NPV of the revised investment plan?
Additional Information:
This question is from Finance as well as it is about computation of optimal NPV for the 4 of the projects, if all the projects are infinitely divisible and what would be the NPV if the projects aren't infinitely divisible.