Capital rationing and mutually exclusive investments. 22. Capital rationing and
ID: 2655479 • Letter: C
Question
Capital rationing and mutually exclusive investments. 22. Capital rationing and mutually exclusive investments (LO12-4) The Suboptimal Glass Company uses a process of capital rationing in its decision making. The firm's cost of capital is 10 percent. It will only invest $77,000 this year. It has determined the internal rate of return for each of the following projects. a. Pick out the projects that the firm should accept. b. If Projects A and B are mutually exclusive. how would that affect your overall answer? That is, which projects would you accepts in spending the $77,000?Explanation / Answer
a. The firm should accept below projects on the basis of high IRR and cash outflow-
Project A=10,500
Project B=30,500
Project C=25,500
Project E=10,500
Total= $77,000
b. project B should be selected since its IRR is more.