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Unformatted text preview: prioritize the projects (listed on the following slide)? Project Details Project NPV ($ Millions) Initial Cost ($ Millions) A $15 $25 B $25 $75 C $110 $200 D $60 $150 E $25 $50 F $20 $35 G $35 $40 Total $290 $575 8-33 Solution Solution Plan: 8-34 The goal is to maximize the total NPV we can create with $300 million (at most). We determine the profitability index for each project. In this case, since money is our limited resource, we will use Initial Cost in the denominator. Once we have the profitability index for each project, we can sort them based on the index. Solution (cont) Solution (cont) Execute: 8-35 Solution (cont) Solution (cont) Execute (cont’d): 8-36 We now assign the resource to the projects in descending order according to the profitability index. The final column shows the cumulative use of the resource as each project is taken on until the resource is used up. To maximize NPV within the constraint of $300 million, AaronCo should choose the first four projects on the list. So...
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