medium · Principles of Finance capital-budgeting
A manager is forced to choose between Project Alpha (NPV $50,000, Cost $100,000) and Project Beta (NPV $60,000, Cost $150,000).
If the firm's goal is to maximize the efficiency of capital usage under a tight budget, which project is superior?
- Project Alpha because its profitability index is higher
- Both are equal because they both have positive NPVs
- Project Beta because its net present value is higher
- Project Alpha because the initial investment is lower
Sign up free to see the explanation and track your rank →
More Principles of Finance capital-budgeting practice
- According to the Net Present Value criterion, which project should be chosen?
- Calculate the 'Profitability Index' for a project with an initial cost of 200,000 and a pr
- If the required rate of return is 10%, what is the Net Present Value (NPV)?
- Which type of 'real option' is being exercised when a pharmaceutical company decides to bu
- What is the project's Profitability Index (PI) at a 10% discount rate?
- If the cost of capital is 10%, what is the Net Present Value (NPV) of the project?
- A firm has FCFF of $100M, interest expense of $20M, a tax rate of 25%, and net new borrowi
- What is the Profitability Index (PI) and what does it indicate for capital rationing?