A company has $500k available for investment now and capital is not available later. Four divisible, independent projects are available ($000): P outlay 200, NPV 60; Q outlay 150, NPV 54; R outlay 250, NPV 70; S outlay 100, NPV 25. What is the maximum total NPV that can be achieved?

Correct answer: D) $156k

Explanation

Profitability indices (NPV / outlay): P 0.30, Q 0.36, R 0.28, S 0.25. Ranking by PI: Q (150, NPV 54), then P (200, NPV 60), leaving 150 for R, i.e. 150/250 = 60% of R giving NPV 42. Total NPV = 54 + 60 + 42 = 156 ($000). Ranking by absolute NPV gives only 148, and 149 is the best result if the projects were indivisible.