Which investment project(s) should the business undertake assuming each project is: (a) divisible (b) indivisible?

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 13P
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5.2 D'Arcy (Builders) Ltd is considering three possible investment projects: A, B and C.
The expected pattern of cash flows for each project is:
Initial outlay
1 year's time
2 years' time
3 years' time
4 years' time
Project cash flows
B
£m
(20)
12
(a) divisible
(b) indivisible?
A
£m
(17)
11
5
7
6
7
7
6
C
£m
(24)
9
9
11
13
The business has a cost of capital of 10 per cent and the investment budget for next year
is £25 million.
Required:
Which investment project(s) should the business undertake assuming each project is:
Transcribed Image Text:5.2 D'Arcy (Builders) Ltd is considering three possible investment projects: A, B and C. The expected pattern of cash flows for each project is: Initial outlay 1 year's time 2 years' time 3 years' time 4 years' time Project cash flows B £m (20) 12 (a) divisible (b) indivisible? A £m (17) 11 5 7 6 7 7 6 C £m (24) 9 9 11 13 The business has a cost of capital of 10 per cent and the investment budget for next year is £25 million. Required: Which investment project(s) should the business undertake assuming each project is:
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