BUS 630 Week 5 Discussion 2-Ranking Investment Alternatives
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Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your responses. Refer to the Discussion Forum Grading Rubric under the Settings icon above for guidance on how your discussion will be evaluated.
Ranking Investment Alternatives
(Problem 10-41) Grosvenor Industries has designated $1.2 million for capital investment expenditures during the upcoming year. Its cost of capital is 14 percent. Any unused funds will earn the cost of capital rate. The following investment opportunities along with their required investment and estimated net present values have been identified:
ProjectNet Investment NPV ProjectNet Investment NPV
A $200,000 $22,000 F $250,000.00 $30,000.00
B $275,000 $21,000 G $100,000.00 $7,000.00
C $150,000 $6,000 H $200,000.00 $18,000.00
D $190,000 -$19,000 I $210,000.00 $4,000.00
E $500,000 $40,000 J $250,000.00 $35,000.00
In your response, complete the following:
Rank the projects using the profitability index. Considering the limit on funds available, which projects should be accepted?
Using the NPV, which projects should be accepted, considering the limit on funds available?
If the available investment funds are reduced to only $1,000,000:
Does the list of accepted projects change from Part 2?
What is the opportunity cost of the eliminated $200,000?