Which project should be implemented

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The engineering department of Mc Jagger Steel has developed the following capital project evaluations:

Project Present value of all Future Net Cash Flows Initial Cost

A 190,000 200,000

B 210,000 150,000

C 600,000 500,000

D 490,000 400,000

E 350,000 300,000

A) Assuming an unlimited capital budget, which project should be implemented? Why?

B) Due to a change in top management philosophy that precludes additional external financing of any kind, the department is faced with a capital budget constraint of $500,000. Which projects should be implemented? Explain.

C) Five minutes before the department head is to take the results from part (b) to the corporate capital budgeting meeting, Smith comes in with revolutionary new capital item that has a cost of $450,000 and an NPV of $120,000. Assuming Smith's analysis is accurate, what should the department head do? Why?

Reference no: EM132431372

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