ACCA FM · Chapter 8 · Question 5 of 10
A company has $300k of capital available. The following independent projects are indivisible ($000): A outlay 120, NPV 30; B outlay 180, NPV 40; C outlay 150, NPV 39; D outlay 100, NPV 20. Which combination of projects should be undertaken?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Projects A and B, total NPV $70k
Explanation
With indivisible projects, every feasible combination must be tested. Feasible pairs within $300k: A+B (300, NPV 70), A+C (270, NPV 69), A+D (220, NPV 50), B+D (280, NPV 60), C+D (250, NPV 59); no three projects fit. A+B gives the highest NPV of $70k. Ranking by profitability index (C 0.26, A 0.25) would select A and C, leaving $30k unused and giving only $69k.
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