Answer (C) is correct . A company using the net present value (NPV) method should undertake all projects with positive NPVs that are not mutually exclusive. Given that Projects 1, 2, and 4 have positive NPVs, those projects should be undertaken. Furthermore, a company using the internal rate of return (IRR) as a decision rule ordinarily chooses projects with a return greater than the cost of capital. Given a 12% cost of capital, Projects 1, 2, and 4 should be chosen using an IRR criterion if they are not mutually exclusive. Use of the profitability index yields a similar decision because a project with an index greater than 100% should be undertaken.
Answer (A) is incorrect because Project 3 has a negative NPV.
Answer (B) is incorrect because Project 3 has a negative NPV.
Answer (D) is incorrect because Project 4 has a positive NPV and should be undertaken.
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Which project(s) should Maloney undertake during the upcoming year assuming it has no budget restrictions?
