Reference no: EM132659032
Exotic Rentals has four independent projects under consideration, each with a required rate of return of 14%. The total projects budget is $800,000. A table showing the investments and projected free cash flows follow:
|
Project/Year
|
Maserati
|
Lamborghini
|
Ferrari
|
BMW i8 Coupe
|
|
0 (investment)
|
$150,380
|
$221,320
|
$286,550
|
$175,500
|
|
1
|
$40,000
|
$85,000
|
$100,000
|
$52,000
|
|
2
|
$80,000
|
$110,000
|
$125,000
|
$90,000
|
|
3
|
$60,000
|
$110,000
|
$125,000
|
$90,000
|
|
4
|
$60,000
|
$92,000
|
$125,000
|
$70,000
|
|
5
|
$95,000
|
$125,000
|
$150,000
|
$135,000
|
No additional cash flows are expected from any of the five projects after year 5. The year 5 cash flow includes rentals and auction of the exotic vehicles into the secondary car market.
Problem 1: Continuing with Exotic Rentals, the company has sufficient capital budget to fund three out of the four projects. Assuming that they do, what three projects should the firm select? Use highest NPV's to determine the projects to select.
[A] Lamborghini, Ferrari, BMW i8 Coupe
[B] Ferrara, BMW i8 Coupe, Maserati
[C] Maserati, Lamborghini, Ferrari
[D] BMW i8 Coupe, Maserati, Lamborghini