The following table gives the available projects (in $millions)for a firm.

The firm has only $20 million to invest. What is the maximum NPV that the company can obtain?
A)3.5
B)4.0
C)4.5
D)5.0

Question

The following table gives the available projects (in $millions)for a firm.

The firm has only $20 million to invest. What is the maximum NPV that the company can obtain?
A)3.5 
B)4.0 
C)4.5 
D)5.0

Quizplus · Accepted Answer

The company can select projects with a total cost of $20 million or less. The projects with the highest NPV per million dollars invested are Project C (NPV of 3.0/1 = 3.0) and Project E (NPV of 4.5/2 = 2.25). Selecting both projects would total $18 million and result in a combined NPV of 3.0 + 2.25 = 5.25. However, since the company only has $20 million to invest, it can only select one project. Therefore, the best choice would be Project C with an NPV of 3.0.

The Following Table Gives the Available Projects (In $Millions)for a Firm