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Which projects should be included in msc capital program

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Reference no: EM132966930

MSC is evaluating the following projects for next year's capital program:

Project:        Initial Investment (Rands):         Length in Years:          Annual Cash Flow (Rands)

A                          3,000,000.00                               6                         720,000.00

B                              3,500,000.00                            5                       980,000.00

C                              4,000,000.00                             7                     905,000.00

D                              5,000,000.00                            4                    1,720,000.00

E                                6,000,000.00                           6                  1,510,000.00

F                                   7,000,000.00                            5                   1,950,000.00

G                                8,000,000.00                                7                    1,730,000.00

Projects A and B are mutually exclusive and so are Projects D and E. MSC has a 12% cost of capital and a maximum of R15 million to spend on capital projects next year.

Required:

Problem 1: Use capital rationing to determine which projects should be included in MSC's capital program.

Reference no: EM132966930

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