Docs R Us has just finished evaluating several projects. Their cost of capital is 10%. NPV's are calculated by the firm's current cost of capital.
Project Cost NPV IRR
A $21,000 $5,000 11%
B $17,000 $4,000 16%
C $15,000 $2,000 12%
D $14,000 $4,000 17%
E $4,0000 $-1,000 9%
A. With no capital rationing, and assuming the projects are of the same risk, which projects should Docs R Us accept? Why?
B. If Docs R Us has a capital budget limit of $40,000, and assuming the projects are of the same risk, which projects should they accept? Why?