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Grosvenor Industries has designated $1.2 million for capital investment expenditures throughout the upcoming year.  Its cost of capital is 14 %. Any unused funds will earn the cost of capital rate. The given investment opportunities all along with their required investment and estimated net present values have been recognized:

Project   Net Investment    NPV     Project   Net Investment          NPV 

A               $200,000           $22,000       F            $250,000           $30,000

B               275,000             21,000         G            100,000               7,000

C               150,000            6,000            H            200,000              18,000

D               190,000            19,000          I              210,000               4,000

E               500,000             40,000         J              250,000               35,000

In your response, complete the given:

1) Rank the projects by using the profitability index. Considering the limit on funds available, which projects must be accepted?

2) By using the NPV, which projects must be accepted, considering the limit on funds available?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M923851

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