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.
|
Project
|
Project Size
|
Internal Rate of Return
|
|
A.....................
|
$10,500
|
21%
|
|
B.....................
|
30,500
|
22
|
|
C.....................
|
25,500
|
18
|
|
D.....................
|
10,500
|
13
|
|
E.....................
|
10,500
|
20
|
|
F......................
|
20,500
|
11
|
|
G.....................
|
10,500
|
16
|
a. Select 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 accept in spending the $77,000?