Question:
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?
1. All of the projects.
2. Projects 1, 2, and 3.
3. Projects 2, 3, and 4.
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?
1. Projects 1 and 3.
2. Projects 2, 3, and 4.
3. Projects 2 and 3.
4. 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?
1. Project 1.
2. Projects 2, 3, and 4.
3. Projects 3 and 4.
4. Project 3.