The Richard Scott paper company has a maximum of $100m to invest. From this limited money they need to invest in a new warehouse to start with. They have 3 options. This warehouse will allow them to sell more paper. Option A has a present value of $50m and costs $20m. Option B has a present value of $60m and costs $50m. Option C has a present value of $200m and costs $100m. The CEO is confident that any remaining money can be invested in other projects with a profitability index of $3 (conditional on the warehouse being in place). Which warehouse should you would invest in and why.
The Richard Scott paper company has a maximum of $100m to invest. From this limited money they need to invest in a new warehouse to start with. They have 3 options. This warehouse will allow them to sell more paper. Option A has a present value of $50m and costs $20m. Option B has a present value of $60m and costs $50m. Option C has a present value of $200m and costs $100m. The CEO is confident that any remaining money can be invested in other projects with a profitability index of $3 (conditional on the warehouse being in place). Which warehouse should you would invest in and why.
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 5P
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The Richard Scott paper company has a maximum of $100m to invest. From this limited money they need to invest in a new warehouse to start with. They have 3 options. This warehouse will allow them to sell more paper. Option A has a present value of $50m and costs $20m. Option B has a present value of $60m and costs $50m. Option C has a present value of $200m and costs $100m. The CEO is confident that any remaining money can be invested in other projects with a profitability index of $3 (conditional on the warehouse being in place). Which warehouse should you would invest in and why.
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