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The combination of projects that should be recommended is the combination that provides the highest total NPV without going over the investment spending limit. This is not the optimal combination of projects. This combination's total NPV is $737,000, and there are combinations that would yield higher total NPVs without going over the limit.
The combination of projects that should be recommended is the combination that provides the highest total NPV without going over the investment spending limit. This is not the optimal combination of projects. This combination's total NPV is $705,000, and there are combinations that would yield higher total NPVs without going over the limit.
The combination of projects that should be recommended is the combination that provides the highest total NPV without going over the investment spending limit. This is not the optimal combination of projects. This combination's total NPV is $780,000, and there is a combination that would yield a higher total NPV without going over the limit.
The combination of projects that should be recommended is the combination that provides the highest total NPV without going over the investment spending limit. The first thing needed is to calculate the NPV for each of the projects. The NPV is the Discounted Cash Flow minus the Investment amount. Discounted Project Investment Cash Flow NPV I $2,800,000 $3,360,000 $560,000 II 1,500,000 1,720,000 220,000 III 2,300,000 2,617,000 317,000 IV 1,200,000 1,368,000 168,000 V 800,000 1,000,000 200,000 Ordinarily with a question like this, we start by identifying all of the possible combinations of projects that would stay within the budgeted amount, then determine which combination yields the highest total NPV. However, since in this question there are only four answer choices, we are limited to those. No other combination can be chosen, so we don't need to consider any other combinations. Total Discounted Projects Investment Cash Flow Total NPV II, III and IV$5,000,000 $5,705,000 $705,000 II, III and V 4,600,000 5,337,000 737,000 I and II 4,300,000 5,080,000 780,000 I, IV and V 4,800,000 5,728,000 928,000 We can see by looking at the table that all of the choices of combinations stay within the $5,000,000 limit. If one or more had required total investment of over $5,000,000, they would have been eliminated immediately. But so far, all four combinations are candidates. Next, we look at the Total NPV column and find the combination of projects with the highest Total NPV. The combination I, IV, and V creates the highest NPV, so that is the combination that should be recommended.