The Carlo Company has been allocated RM600,000 on investment projects for the coming year. Four projects, each with a four year life and with the following cash flows are currently being considered: Year01234ProjectRMkRMkRMkRMkRMkA-30010010200200B-200000400C-100008080D-15060606060 Distinguish between hard and soft capital rationing Assuming that the projects are divisible recommend to the Board, which projects should be accepted using the Net Present Value method and evaluate the total net present value that would be generatedDiscuss the impact on your analysis of each project being indivisible

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Answered: The Carlo Company has been allocated…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 11P

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The Carlo Company has been allocated RM600,000 on investment projects for the coming year. Four projects, each with a four year life and with the following cash flows are currently being considered:

Year	0	1	2	3	4
Project	RMk	RMk	RMk	RMk	RMk
A	-300	100	10	200	200
B	-200	0	0	0	400
C	-100	0	0	80	80
D	-150	60	60	60	60

Distinguish between hard and soft capital rationing
Assuming that the projects are divisible recommend to the Board, which projects should be accepted using the Net Present Value method and evaluate the total net present value that would be generated
Discuss the impact on your analysis of each project being indivisible

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