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Hi John ,
If in a capital rationing question it tells us that
Projects A B C D
NPV/dollar 5 4 3 2Each project costs 1 dollar and we have 3 dollars
But we cant do A and B together so what should be our strategy?I hope I havent made the
question confusing.Regards,
FurqanI don’t know where you found this question, but surely you have an answer in the same book in which you found the question!!
You have not said whether the projects are divisible or indivisible, although in this case it is irrelevant because of the amount involved.
Clearly you can only afford to do three of the projects.
So calculate the total NPV is they do A,C and D. Calculate the total NPV if they do B, C and D.Whichever of the two gives the higher NPV is the best strategy.
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