A small company has P20,000 in surplus capital that it wishes to invest in new revenue producing projects. Three independent sets of mutually exclusive projects have been developed. The useful life of each is five years and all market values are zero. You have been asked to perform an IRR analysis to select the best combination of projects. If the MARR is 12% per year, which combination of projects would you recommend? Project Capital investment (P) Net annual benefits (P) Mutually exclusive A1 5,000 1,500 A2 7,000 1,800 Mutually exclusive B1 12,000 2,000 B2 18,000 4,000 Mutually exclusive C1 14,000 4,000 C2 18,000 4,500 A small company has P20,000 in surplus capital that it wishes to invest in new revenueproducing projects. Three independent sets of mutually exclusive projects have beendeveloped. The useful life of each is five years and all market values are zero. You havebeen asked to perform an IRR analysis to select the best combination of projects. If theMARR is 12% per year, which combination of projects would you recommend?ProjectCapital investment (P) Net annual benefits (P)| Mutually exclusive5,0001,500AlA27,0001,800Mutually exclusiveB112,0002,000B218,0004,000Mutually exclusiveC114,0004,000C218,0004,500

The question is based on the concept of capital budgeting with capital limitations. Internal rate of…

Answered: A small company has P20,000 in surplus…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 22E

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A small company has P20,000 in surplus capital that it wishes to invest in new revenue producing projects. Three independent sets of mutually exclusive projects have been developed. The useful life of each is five years and all market values are zero. You have been asked to perform an IRR analysis to select the best combination of projects. If the MARR is 12% per year, which combination of projects would you recommend? Project Capital investment (P) Net annual benefits (P) Mutually exclusive A1 5,000 1,500 A2 7,000 1,800 Mutually exclusive B1 12,000 2,000 B2 18,000 4,000 Mutually exclusive C1 14,000 4,000 C2 18,000 4,500

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