Problem:
Galaxy Satellite Co. is attempting to select the best group of independent projects competing for the firm's fixed capital budget of $10,000,000. Any unused portion of this budget will earn less than its 20 percent cost of capital. A summary of key data about the proposed projects follows.
(a) Use the NPV approach to select the best group of projects.
(b) Use the IRR approach to select the best group of projects, if the required rate of return is 23.5%.
Project Initial Investment IRR PV of Inflows at 20%
A $3,000,000 21% $3,050,000
B 9,000,000 25 9,320,000
C 1,000,000 24 1,060,000
D 7,000,000 23 7,350,000