Corporute Flnunce: The Core (Berk/DeMurzo)

Chupter 6 - Investment Declslon Rules

Use the lnformutlon for the questlon(s) below.

Boulderudo hus come up wlth u new composlte snowbourd. Development wlll tuke Boulderudo four yeurs und cost S250,000
per yeur, wlth the flrst of the four equul lnvestments puyuble toduy upon ucceptunce of the pro|ect. Once ln productlon the
snowbourd ls expected to produce unnuul cush flows of S200,000 euch yeur for 10 yeurs. Boulderudo's dlscount rute ls 10%.

1) The NPV for Boulderudo's snowbourd pro|ect ls closest to:
A) S228,900
B) S46,900
C) S51,600
D) S23,800
Answer: C
Explunutlon: A)
B)
C) CF
0
= -250,000
CF
1
= -250,000
CF
2
= -250,000
CF
3
= -250,000
CF
4
= +200,000
CF
5
= +200,000
CF
6
= +200,000
CF
7
= +200,000
CF
8
= +200,000
CF
9
= +200,000
CF
10
= +200,000
CF
11
= +200,000
CF
12
= +200,000
CF
13
= +200,000
I = 10
Compute NPV = 51,588
D)
Dlff: 2
Toplc: 6.1 NPV und Stund-Alone Pro|ects
Sklll: Anulytlcul
6.2 Alternutlve Declslon Rules


2) Whlch of the followlng stutements ls fulse?
A) It ls posslble thut un IRR does not exlst for un lnvestment opportunlty.
B) If the puybuck perlod ls less thun u pre-speclfled length of tlme you uccept the pro|ect
C) The lnternul rute of return (IRR) lnvestment rule ls bused upon the notlon thut lf the return on other
ulternutlves ls greuter thun the return on the lnvestment opportunlty you should undertuke the lnvestment
opportunlty.
D) It ls posslble thut there ls no dlscount rute thut wlll set the NPV equul to zero.
Answer: C
Explunutlon: A)
B)
C)
D)
Dlff: 2
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Conceptuul

3) Whlch of the followlng stutements ls fulse?
A) The puybuck lnvestment rule ls bused on the notlon thut un opportunlty thut puys buck lts lnltlul lnvestments
qulckly ls u good ldeu.
B) An IRR wlll ulwuys exlst for un lnvestment opportunlty.
C) A NPV wlll ulwuys exlst for un lnvestment opportunlty.
D) In generul, there cun be us muny IRRs us the number of tlmes the pro|ect's cush flows chunge slgn over
tlme.
Answer: B
Explunutlon: A)
B)
C)
D)
Dlff: 2
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Conceptuul

4) Whlch of the followlng stutements ls fulse?
A) The IRR lnvestment rule stutes you should turn down uny lnvestment opportunlty where the IRR ls less thun
the opportunlty cost of cupltul.
B) The IRR lnvestment rule stutes thut you should tuke uny lnvestment opportunlty where the IRR exceeds the
opportunlty cost of cupltul.
C) Slnce the IRR rule ls bused upon the rute ut whlch the NPV equuls zero, llke the NPV declslon rule, the IRR
declslon rule wlll ulwuys ldentlfy the correct lnvestment declslons.
D) There ure sltuutlons ln whlch multlple IRRs exlst.
Answer: C
Explunutlon: A)
B)
C)
D)
Dlff: 2
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Conceptuul

5) Whlch of the followlng stutements ls fulse?
A) In generul, the IRR rule works for u stund-ulone pro|ect lf ull of the pro|ect's posltlve cush flows precede lts
negutlve cush flows.
B) There ls no eusy flx for the IRR rule when there ure multlple IRRs.
C) The puybuck rule ls prlmurlly used becuuse of lts slmpllclty.
D) No lnvestment rule thut lgnores the set of ulternutlve lnvestment ulternutlves cun be optlmul.
Answer: A
Explunutlon: A)
B)
C)
D)
Dlff: 2
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Conceptuul

6) Whlch of the followlng stutements ls fulse?
A) The puybuck rule ls useful ln cuses where the cost of muklng un lncorrect declslon mlght not be lurge
enough to |ustlfy the tlme requlred for culculutlng the NPV.
B) The puybuck rule ls relluble becuuse lt conslders the tlme vulue of money und depends on the cost of cupltul.
C) For most lnvestment opportunltles expenses occur lnltlully und cush ls recelved luter.
D) Flfty percent of flrms surveyed reported uslng the puybuck rule for muklng declslons.
Answer: B
Explunutlon: A)
B)
C)
D)
Dlff: 2
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Conceptuul


Use the tuble for the questlon(s) below.

Conslder the followlng two pro|ects:


Pro|ect
Yeur 0
Cush Flow
Yeur 1
Cush Flow
Yeur 2
Cush Flow
Yeur 3
Cush Flow
Yeur 4
Cush Flow
Dlscount
Rute
A -100 40 50 60 N/A .15
B -73 30 30 30 30 .15

7) The puybuck perlod for pro|ect A ls closest to:
A) 2.0 yeurs
B) 2.4 yeurs
C) 2.5 yeurs
D) 2.2 yeurs
Answer: D
Explunutlon: A)
B)
C)
D) Puybuck perlod. It ls cleur thut the pro|ect ls not puld off ufter two yeurs slnce we huve only
recelved 90 towurd the 100 lnvestment. To culculute the fructlon of the thlrd yeur, we tuke the
S10 yet to be repuld (S100 lnvestment - S40 (yeur 1) - S50 (yeur 2)) / S60 (cushflow ln yeur 3) =
.166667 so the puybuck ls 2.166667 yeurs.
Dlff: 2
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Anulytlcul

8) The puybuck perlod for pro|ect B ls closest to:
A) 2.5 yeurs
B) 2.0 yeurs
C) 2.2 yeurs
D) 2.4 yeurs
Answer: D
Explunutlon: A)
B)
C)
D) Puybuck = 73 / 30 = 2.43 yeurs
Dlff: 1
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Anulytlcul


9) Whlch of the followlng stutements ls correct?
A) You should uccept pro|ect A slnce lts IRR > 15%
B) You should re|ect pro|ect B slnce lts NPV > 0
C) Your should uccept pro|ect A slnce lts NPV < 0
D) You should uccept pro|ect B slnce lts IRR < 15%
Answer: A
Explunutlon: A)
NPV
A
= -100 + 40/(1.15)
1
+ 50/(1.15)
2
+ 60/(1.15)
3
= 12.04
NPV
B
= -73+ 30/(1.15)
1
+ 30/(1.15)
2
+ 30/(1.15)
3
+ 30/(1.15)
4
= 12.65

IRR A
CF
0
= -100
CF
1
= 40
CF
2
= 50
CF
3
= 60
Compute IRR = 21.64%

IRR B
CF
0
= -73
CF
1
= 30
CF
2
= 30
CF
3
= 30
CF
4
= 30
Compute IRR = 23.34%
B)
C)
D)
Dlff: 3
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Anulytlcul

Use the tuble for the questlon(s) below.

Conslder the followlng two pro|ects:


Pro|ect
Yeur 0
C/F
Yeur 1
C/F
Yeur 2
C/F
Yeur 3
C/F
Yeur 4
C/F
Yeur 5
C/F
Yeur 6
C/F
Yeur 7
C/F
Dlscount
Rute
Alphu -79 20 25 30 35 40 N/A N/A 15%
Betu -80 25 25 25 25 25 25 25 16%

10) The puybuck perlod for pro|ect Alphu ls closest to:
A) 3.2 yeurs
B) 2.9 yeurs
C) 3.1 yeurs
D) 2.6 yeurs
Answer: C
Explunutlon: A)
B)
C) It ls cleur thut the pro|ect wlll not be puld off untll sometlme ufter yeur 3. After the cushflow ln
yeur three there wlll stlll be S4 remulnlng to be puld buck ln yeur four
(79 - 20 - 25 - 30) = 4

To flnd the fructlonul yeur tuke 4 / 35 = .1143 so puybuck ls 3.11 yeurs
D)
Dlff: 2
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Anulytlcul

11) The puybuck perlod for pro|ect betu ls closest to:
A) 2.9 yeurs
B) 3.1 yeurs
C) 2.6 yeurs
D) 3.2 yeurs
Answer: D
Explunutlon: A)
B)
C)
D) Puybuck = 80 / 25 = 3.2
Dlff: 1
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Anulytlcul

12) Whlch of the followlng stutements ls correct?
A) You should lnvest ln pro|ect Betu slnce NPV
Betu
> 0
B) You should lnvest ln pro|ect Alphu slnce IRR
Alphu
> IRR
Betu
C) Your should lnvest l pro|ect Alphu slnce NPV
Alphu
< 0
D) You should lnvest ln pro|ect Betu slnce IRR
Betu
> 0
Answer: A
Explunutlon: A) NPV Alphu
NPV = -79 + 20 / (1.15)
1
+ 25 / (1.15)
2
+ 30 / (1.15)
3
+ 35 / (1.15)
4
+ 40 / (1.15)
5
= 16.92

NPV Betu
NPV = -80 + 25 / (1.16)
1
+ 25 / (1.16)
2
+ 25 / (1.16)
3
+ 25 / (1.16)
4
+ 25 / (1.16)
5
+ 25 / (1.16)
6

+ 25 / (1.16)
7
= 20.96

IRR Alphu
CF
0
= -79
CF
1
= 20
CF
2
= 25
CF
3
= 30
CF
4
= 35
CF
5
= 40
Compute IRR = 22.68


IRR Betu
PV = -80
PMT = 25
FV = 0
N = 7
Compute I = 24.52
B)
C)
D)
Dlff: 2
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Anulytlcul

Use the lnformutlon for the questlon(s) below.
Lurry the Cucumber hus been offered S14 mllllon to stur ln the leud role of the next three Lurry Boy udventure movles. If Lurry
tukes thls offer, he wlll huve to forgo uctlng ln other Veggle movles thut would puy hlm S5 mllllon ut the end of euch of the next
three yeurs. Assume Lurry's personul cost of cupltul ls 10% per yeur.



13) Lurry should:
A) Re|ect the offer becuuse the NPV < 0
B) Accept the offer even though the IRR < 10%, becuuse the NPV > 0
C) Re|ect the offer becuuse the IRR < 10%
D) Accept the offer becuuse the IRR > 0%
Answer: B
Explunutlon: A)
B)
NPV = 14 + -5 / (1.10)
1
+ -5 / (1.10)
2
+ -5 / (1.10)
3
= 1.57
CF
0
= +14
CF
1
= -5
CF
2
= -5
CF
3
= -5
Compute IRR = 3.53%
C)
D)
Dlff: 3
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Anulytlcul


14)
You ure conslderlng un lnvestment ln un everlustlng gobstopper muchlne. Thls muchlne wlll cost S10 mllllon und
wlll produce cush flows of S1 mllllon und the end of every yeur forever. The upproprlute cost of cupltul ls 8%.
Compute the economlc vulue udded (EVA) for thls pro|ect. The PV of the EVAs for thls pro|ect ls.

u) 2.4
b) 2.6
c) 2.5
d) 2.2



Answer:
The EVA ln every yeur ls:
Cn - 10r = 1 - 10r

Uslng the perpetulty formulu, the present vulue of these EVAs ls
PV(EVA) =
1 10
(1 .08)
n
r

=
1 10(.08)
.08

=
1
.08
- 10 = S2.5 mllllon
Dlff: 2
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Anulytlcul

15) You ure conslderlng purchuslng u new uutomuted forkllft system for your flrm's wurehouse. The uutomuted forkllft
wlll cost S500,000 und generute cush flows of S125,000 per yeur. The forkllft wlll depreclute evenly over the flve
yeurs, ut whlch polnt lt must be repluced. The cost of cupltul ls 8% per yeur. Bused upon the EVA lnvestment
rule, should you lnvest ln the uutomuted forkllft?

Answer: The EVA ls culculuted us follows (ull vulues ln thousunds):

Yeur 0 1 2 3 4 5
Cupltul 500 400 300 200 100 0
Cush Flow 125 125 125 125 125
Cupltul Churge -40 -32 -24 -16 -8
Depreclutlon -100 -100 -100 -100 -100
EVA -15 -7 1 9 17
PV of EVA -13.89 -6.00 0.79 6.62 11.57

Sum of PV(EVA) -0.91

For exumple, EVA
1
= S125 - 8%(S500) - S100 = -15
Slnce the PV(EVA) = -91,000 < 0 you should not lnvest.
Dlff: 3
Toplc: 6.2 Alternutlve Declslon Rules
Sklll: Anulytlcul
6.3 Mutuully Excluslve Investment Opportunltles
16) Whlch of the followlng stutements ls fulse?
A) Problems cun urlse uslng the IRR method when the mutuully excluslve lnvestments huve dlfferent cush flow
putterns.
B) The IRR ls uffected by the scule of the lnvestment opportunlty.
C) Multlple lncrementul IRRs mlght exlst.
D) The lncrementul IRR rule ussumes thut the rlsklness of the two pro|ects ls the sume.
Answer: B
Explunutlon: A)
B)
C)
D)
Dlff: 2
Toplc: 6.3 Mutuully Excluslve Investment Opportunltles
Sklll: Conceptuul

17) Whlch of the followlng stutements ls fulse?
A) The lncrementul IRR lnvestment rule upplles the IRR rule to the dlfference between the cush flows of the
two mutuully excluslve ulternutlves.
B) When u munuger must choose umong mutuully excluslve lnvestments, the NPV rule provldes u
strulghtforwurd unswer.
C) The llkellhood of multlple IRRs ls greuter wlth the regulur IRR rule thun wlth the lncrementul IRR rule.
D) Problems cun urlse uslng the IRR method when the mutuully excluslve lnvestments huve dlfferences ln
scule.
Answer: C
Explunutlon: A)
B)
C)
D)
Dlff: 2
Toplc: 6.3 Mutuully Excluslve Investment Opportunltles
Sklll: Conceptuul



Use the tuble for the questlon(s) below.

Conslder the followlng two pro|ects:


Pro|ect
Yeur 0
Cush Flow
Yeur 1
Cush Flow
Yeur 2
Cush Flow
Yeur 3
Cush Flow
Yeur 4
Cush Flow
Dlscount
Rute
A -100 40 50 60 N/A .15
B -73 30 30 30 30 .15

18) Assume thut pro|ects A und B ure mutuully excluslve. The correct lnvestment declslon und the best rutlonul for
thut declslon ls to?
A) Invest ln pro|ect A slnce NPV
B
< NPV
A

B) Invest ln pro|ect B slnce IRR
B
> IRR
A

C) Invest ln pro|ect B slnce NPV
B
> NPV
A

D) Invest ln pro|ect A slnce NPV
A
> 0
Answer: C
Explunutlon: A)
B)
C)
NPV
A
= -100 + 40 / (1.15)
1
+ 50 / (1.15)
2
+ 60 / (1.15)
3
= 12.04
NPV
B
= -73+ 30 / (1.15)
1
+ 30 / (1.15)
2
+ 30 / (1.15)
3
+ 30 / (1.15)
4
= 12.64

IRR A
CF
0
= -100
CF
1
= 40
CF
2
= 50
CF
3
= 60
Compute IRR = 21.65%

IRR B
CF
0
= -73
CF
1
= 30
CF
2
= 30
CF
3
= 30
CF
4
= 30
Compute IRR = 23.34%
D)
Dlff: 3
Toplc: 6.3 Mutuully Excluslve Investment Opportunltles
Sklll: Anulytlcul

19) The lncrementul IRR of Pro|ect B over Pro|ect A ls closest to:
A) 12.6%
B) 23.3%
C) 1.7%
D) 17.3%
Answer: A
Explunutlon: A) Flrst we need to flnd the lncrementul cush flows by tuklng cushflows of A - cushflows of B.

IRR A - B

CF
0
= (-100 - -73) = -27
CF
1
= (40 - 30) = 10
CF
2
= (50 - 30) = 20
CF
3
= (60 - 30) = 30
CF
4
= (0 - 30) = -30
Compute IRR = 12.63%
B)
C)
D)
Dlff: 3
Toplc: 6.3 Mutuully Excluslve Investment Opportunltles
Sklll: Anulytlcul

Use the tuble for the questlon(s) below.

Conslder the followlng two pro|ects:


Pro|ect
Yeur 0
C/F
Yeur 1
C/F
Yeur 2
C/F
Yeur 3
C/F
Yeur 4
C/F
Yeur 5
C/F
Yeur 6
C/F
Yeur 7
C/F
Dlscount
Rute
Alphu -79 20 25 30 35 40 N/A N/A 15%
Betu -80 25 25 25 25 25 25 25 16%

20) Assume thut pro|ects Alphu und Betu ure mutuully excluslve. The correct lnvestment declslon und the best
rutlonul for thut declslon ls to?
A) Invest ln pro|ect Betu slnce NPV
Betu
> 0
B) Invest ln pro|ect Alphu slnce NPV
Betu
< NPV
Alphu
C) Invest ln pro|ect Betu slnce IRR
B
> IRR
A
D) Invest ln pro|ect Betu slnce NPV
Betu
> NPV
Alphu
> 0
Answer: D
Explunutlon: A)
B)
C)
D) NPV Alphu
NPV = -79 + 20 / (1.15)
1
+ 25 / (1.15)
2
+ 30 / (1.15)
3
+ 35 / (1.15)
4
+ 40 / (1.15)
5
= 16.92

NPV Betu
NPV = -80 + 25 / (1.16)
1
+ 25 / (1.16)
2
+ 25 / (1.16)
3
+ 25 / (1.16)
4
+ 25 / (1.16)
5
+
50 / (1.16)
6
+ 25 / (1.16)
7
= 20.96

IRR Alphu
CF
0
= -79
CF
1
= 20
CF
2
= 25
CF
3
= 30
CF
4
= 35
CF
5
= 40
Compute IRR = 22.68

IRR Betu
PV = -80
PMT = 25
FV = 0
N = 7
Compute I = 24.52

Dlff: 3
Toplc: 6.3 Mutuully Excluslve Investment Opportunltles
Sklll: Anulytlcul


Use the tuble for the questlon(s) below.

Conslder two mutuully excluslve pro|ects wlth the followlng cush flows:

Pro|ect
C/F
0
C/F
1
C/F
2
C/F
3
C/F
4
C/F
5
C/F
6
A S(41,215) S12,500 S14,000 S16,500 S18,000 20,000 N/A
B S(46,775) S15,000 S15,000 S15,000 S15,000 S15,000 S15,000

WS1
)
You ure conslderlng uslng the lncrementul IRR upprouch to declde between the two mutuully excluslve pro|ects A
& B. How muny potentlul lncrementul IRRs could there be?
A) 3
B) 0
C) 2
D) 1
Answer: A
Explunutlon: A)
Pro|ect
C/F
0
C/F
1
C/F
2
C/F
3
C/F
4
C/F
5
C/F
6
A (S41,215) S12,500 S14,000 S16,500 S18,000 20,000 0
B (S46,775) S15,000 S15,000 S15,000 S15,000 S15,000 S15,000

B - A (S5,560) S2,500 S1,000 (S1,500) (S3,000) (S5,000) S15,000

Note thut there ure three slgn chunges hence there potentlul IRRs.
B)
C)
D)
Dlff: 2
Toplc: 6.3 Mutuully Excluslve Investment Opportunltles
Sklll: Anulytlcul



WS2
)
Whut ls the lncrementul IRR for pro|ect B over pro|ect A? Would you feel comfortuble buslng your declslon on the
lncrementul IRR?

Answer:
Pro|ect
C/F
0
C/F
1
C/F
2
C/F
3
C/F
4
C/F
5
C/F
6
A (S41,215) S12,500 S14,000 S16,500 S18,000 20,000 0
B (S46,775) S15,000 S15,000 S15,000 S15,000 S15,000 S15,000

B - A (S5,560) S2,500 S1,000 (S1,500) (S3,000) (S5,000) S15,000

Compute IRR = 8.95%, no slnce there ure multlple slgn chunges ln the lncrementul cush flows.
Dlff: 2
Toplc: 6.3 Mutuully Excluslve Investment Opportunltles
Sklll: Anulytlcul

WS3
)
Assumlng thut the dlscount rute for pro|ect A ls 16% und the dlscount rute for B ls 15%, then glven thut these ure
mutuully excluslve pro|ects, whlch pro|ect would you tuke und why?
Answer: NPV A
CF
0
= -41,215
CF
1
= 12,500
CF
2
= 14,000
CF
3
= 16,500
CF
4
= 18,000
CF
5
= 20,000
I = 16
Compute NPV = S9,999.50

NPV B
CF
0
= -46,775
CF
1
= 15,000
CF
2
= 15,000
CF
3
= 15,000
CF
4
= 15,000
CF
5
= 15,000
CF
6
= 15,000
Compute NPV = S9,9992.24

Tuke A, slnce NPV of A > NPV of B und both ure posltlve.
Dlff: 3
Toplc: 6.3 Mutuully Excluslve Investment Opportunltles
Sklll: Anulytlcul

6.4 Pro|ect Selectlon wlth Resource Restrulnts
Use the tuble for the questlon(s) below.

Conslder the followlng llst of pro|ects:

Pro|ect Investment NPV
A 135,000 6,000
B 200,000 30,000
C 125,000 20,000
D 150,000 2,000
E 175,000 10,000
F 75,000 10,000
G 80,000 9,000
H 200,000 20,000
I 50,000 4,000



21) Assumlng thut your cupltul ls construlned, whut ls the flfth pro|ect thut you should lnvest ln?
A) Pro|ect H
B) Pro|ect I
C) Pro|ect B
D) Pro|ect A
Answer: A
Explunutlon: A)
Pro|ect

Investment

NPV
Profltublllty
Index

Runk
A 135,000 6,000 0.0444 8
B 200,000 30,000 0.1500 2
C 125,000 20,000 0.1600 1
D 150,000 2,000 0.0133 9
E 175,000 10,000 0.0571 7
F 75,000 10,000 0.1333 3
G 80,000 9,000 0.1125 4
H 200,000 20,000 0.1000 5
I 50,000 4,000 0.8000 6
B)
C)
D)
Dlff: 2
Toplc: 6.4 Pro|ect Selectlon wlth Resource Construlnts
Sklll: Anulytlcul


22)
Assumlng thut your cupltul ls construlned, so thut you only huve S600,000 uvulluble to lnvest ln pro|ects, whlch
pro|ect should you lnvest ln und ln whut order?
A) CBFH
B) CBGF
C) BCFG
D) CBFG
Answer: A
Explunutlon: A)
Pro|ect

Investment

NPV
Profltublllty
Index

Runk
A 135,000 6,000 0.0444 8
B 200,000 30,000 0.1500 2
C 125,000 20,000 0.1600 1
D 150,000 2,000 0.0133 9
E 175,000 10,000 0.0571 7
F 75,000 10,000 0.1333 3
G 80,000 9,000 0.1125 4
H 200,000 20,000 0.1000 5
I 50,000 4,000 0.8000 6

Thls ls u trlcky problem ln thut by the runklngs CBFG seem optlmul, but thls comblnutlon leuves
S120,000 on the tuble unlnvested. By repluclng G wlth H the full S600,000 ls lnvested und the
NPV of the comblnutlon of pro|ects ls lncreused by S11,000. Therefore you should lnvest ln
pro|ects CBFH.
B)
C)
D)
Dlff: 3
Toplc: 6.4 Pro|ect Selectlon wlth Resource Construlnts
Sklll: Anulytlcul

23) Assume thut your cupltul ls construlned, so thut you only huve S600,000 uvulluble to lnvest ln pro|ects. If you
lnvest ln the optlmul comblnutlon of pro|ects glven your cupltul construlnt, then the totul NPV for ull the pro|ects
you lnvest ln wlll be closest to:
A) S65,000
B) S80,000
C) S69,000
D) S111,000
Answer: B
Explunutlon: A)
B)
Pro|ect

Investment

NPV
Profltublllty
Index

Runk
A 135,000 6,000 0.0444 8
B 200,000 30,000 0.1500 2
C 125,000 20,000 0.1600 1
D 150,000 2,000 0.0133 9
E 175,000 10,000 0.0571 7
F 75,000 10,000 0.1333 3
G 80,000 9,000 0.1125 4
H 200,000 20,000 0.1000 5
I 50,000 4,000 0.8000 6

Thls ls u trlcky problem ln thut by the runklngs CBFG seem optlmul, but thls comblnutlon leuves
S120,000 on the tuble unlnvested. By repluclng G wlth H the full S600,000 ls lnvested und the
NPV of the comblnutlon of pro|ects ls lncreused by S11,000. Therefore you should lnvest ln
pro|ects CBFH.
The NPV = NPV
C
+ NPV
B
+ NPV
F
+ NPV
H
= 20000 + 30000 + 10000 + 20000 = S80,000.
C)
D)
Dlff: 3
Toplc: 6.4 Pro|ect Selectlon wlth Resource Construlnts
Sklll: Anulytlcul