Items 1 thru 3 are based on the following information:
Capital Invest Inc. uses a 12% hurdle rate for all capital expenditures and has done the following analysis for four projects for the upcoming year.
|
Project 1 |
Project 2 |
Project 3 |
Project 4 |
||
|
Initial capital outlay |
$200,000 |
$298,000 |
$248,000 |
$272,000 |
|
|
Annual net cash inflows |
|||||
|
Year 1 |
$ 65,000 |
$100,000 |
$80,000 |
$ 95,000 |
|
|
Year 2 |
70,000 |
135,000 |
95,000 |
125,000 |
|
|
Year 3 |
80,000 |
90,000 |
90,000 |
90,000 |
|
|
Year 4 |
40,000 |
65,000 |
80,000 |
60,000 |
|
|
Net present value |
(3,798) |
4,276 |
14,064 |
14,662 |
|
|
Profitability index |
98% |
101% |
106% |
105% |
|
|
Internal rate of return |
11% |
13% |
14% |
15% |
|
Which project(s) should Capital Invest Inc. undertake during the upcoming year assuming it has no budget restrictions?
- All of the projects.
- Projects 1, 2, and 3.
- Projects 2, 3, and 4.
- Projects 1, 3, and 4.
Which project(s) should Capital Invest Inc. undertake during the upcoming year if it has only $600,000 of funds available?
- Projects 1 and 3.
- Projects 2, 3, and 4.
- Projects 2 and 3.
- Projects 3 and 4.
Which project(s) should Capital Invest Inc. undertake during the upcoming year if it has only $300,000 of capital funds available?
- Project 1.
- Projects 2, 3, and 4.
- Projects 3 and 4.
- Project 3.