Capital Rationing. Rand Corporation is considering five different investment opportunities. The company’s cost of capital is 12 percent. Data on these opportunities under consideration are given below.
Project Investment ($) PV at 12% ($) NPV ($) IRR (%) Profitability Index (Rounded)
1 35,000 39,325 4,325 16 1.12
2 20,000 22,930 2,930 15 1.15
3 25,000 27,453 2,453 14 1.10
4 10,000 10,854 854 18 1.09
5 9,000 8,749 (251) 11 0.97
Based on these data: (a) rank these five projects in the descending order of preference, according to NPV, IRR, and profitability index (or benefit/cost ratio). (b) Which ranking would you prefer? (c) Based on your answer to part (b), which projects would you select if $55,000 is the limit to be spent?