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My Dear tutor, I have a question.
Example 1 in discounted cash flow further aspects in opentuition book.NPV (A+B+D)=157$ NPV
B) capital rationing is 1600 not infinitely divisible
500+600+400+1500$ total investment
you said that do not borrow 100$ i watched your lecture but could not catch it.could you please clarify it?Although there is $1,600 available, they will be borrowing that money. (Even if they already have the cash in the company, it belongs to the shareholders and if they are not paying it to shareholders as dividend then they are effectively borrowing it from shareholders.)
However, if they are only able to invest a total of $1,500 there would be no point in borrowing the remaining $100. There is no point in borrowing $100 (and paying interest on it) if there is nowhere to invest it 🙂
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