Consider the following projects: Initial Investment NPV Project A $5 million $1.
ID: 2784340 • Letter: C
Question
Consider the following projects:
Initial Investment NPV
Project A $5 million $1.93
Project B $3 million $1.212
Project C $2 million $1.465
Project D $3 million $1.00
An investor has a budget of $5 million. He can invest in the projects shown above. If the cost of capital is 6%, what investment or investments should he make?
Project A
Project B
Project B and Project C
Project C and Project D
Explanation / Answer
Project B and Project C
because the above would combine required investment of 5 million and would have highest NPV of=1.212+1.465=2.677
as the NPV is highest with Project B and Project C , then invest in both Project B and Project C
the above is the answer