Answer:
Consider the following calculation
Explanation:
All projects having positive NPVs, thus all projects are feasible.
(All figures are in $' million)
Funds required to invest in all projects are
First year = 6 + 2 + 4 + 10 = 22 & available fund for first year is only 20.
Second year = 8 + 4 + 8 + 6 = 36 & available fund for second year is only 13.
In these type of situations we use Profitability Index to decide which projects are selected and which are to be skipped.
Profitablilty index = PV of cash inflow/ PV of cash outflows
But in this such information is not given to calculate Profitability index, thus we are calculating here NPV per One $ of investment.
thus NPV per One $ of investment = NPV of project / Investment in Project
Note: We are taking here value of investment in project for both two year with out taking effect of time value of money as no discount rate is provided in the question.
CHECK THE EXCEL ATTACHED
Total fund available with investor = 20+13 = 33
Total fund required for Project 4 & Project 1= 16 + 14 =30
thus he can invest in only project 4 & Project 1, for investing in next profitable project i.e. project 2 he requires $6 million but he has only $3 million in his hands.
Thus the optimal solution for the client is to invest in Project 4 & Project 1.
Thus Funds available in first year = 20, Investment in First year = 10+6 = 16, Funds remains in hand =4
Funds available in second year = 4+ 13= 17, Investment in second year =6+8= 14, funds remains in hand = 3
NPV from total investment = 80 + 50 = 130
