50.1K

Verified Solution

Link Copied!

Problem 12-22 Capital rationing and mutually exclusive investments [LO12-4]

The Suboptimal Glass Company uses a process of capital rationing in its decision making. The firms cost of capital is 10 percent. It will only invest $76,600 this year. It has determined the internal rate of return for each of the following projects.

Project	Project Size			Internal Rate of Return
A	$	10,400			11	%
B		30,400			16
C		25,400			19
D		10,400			15
E		10,400			18
F		10,400			14
G		15,400			13

a. Pick out the projects that the firm should accept. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

	Project F
	Project G
	Project B
	Project E
	Project C
	Project A
	Project D

b. If Projects C and E are mutually exclusive, which projects would you accept in spending the $76,600? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

	Project C
	Project A
	Project B
	Project E
	Project D
	Project G
	Project F

Answer & Explanation Solved by verified expert

See Answer