Maloney Company uses a 12% hurdle rate for all capital expenditures and has done the following analysis for four projects for the upcoming year: Which project(s) should Maloney undertake during the upcoming year if it has only $6,000,000 of funds available? A. Project 3. B. Projects 1 and 2. C. Project 1. D. Project 2.
Answer (D) is correct . With only $6,000,000 available and each project costing $4,000,000 or more, no more than one project can be undertaken. Project 2 should be chosen because it has a positive NPV and the highest profitability index. The high profitability index means that the company will achieve the highest NPV per dollar of investment with Project 2. The profitability index facilitates comparison of different-sized investments.