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Unformatted text preview: 1,000 $1,000 $1,000 IRR = 100% $2,000 $2,000 NPV* = $2,238.17 238. *Higher NPV, but the same IRR. Y is Best Best. 74 Certified Financial Controller CFC 37 Capital Rationing Capital Rationing occurs when a Rationing occurs when constraint (or budget ceiling) is placed on the total size of capital expenditures during a particular period. Example: Julie Miller must determine what Julie Miller must determine what investment opportunities to undertake for Basket Wonders (BW). She is limited to a maximum expenditure of $32,500 only for this capital budgeting period. 75 Certified Financial Controller CFC Available Projects for BW Project A B C D E F G H 76 ICO ICO IRR IRR $ 500 5,000 5,000 7,500 12,500 15,000 17,500 25,000 18% 25 37 20 26 28 19 15 NPV NPV $ PI PI 50 6,500 5,500 5,000 500 21,000 7,500 6,000 1.10 2.30 2.10 1.67 1.04 2.40 1.43 1.24 Certified Financial Controller CFC 38 Choosing by IRRs for BW Project C F E B ICO ICO IRR IRR NPV NPV PI PI $ 5,000 15,000 12,500 5,000 37% 28 26 25 $ 5,500 21,000 500 6,500 2.10 2.40 1.04 2.30 Projects C, F, and E have the and have the three largest IRRs. The r...
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This note was uploaded on 05/28/2013 for the course FINANCE economy taught by Professor Nill during the Fall '12 term at Bronx School Of Law And Finance.

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