Mace Ltd is planning its capital budget for 19_7 and 19_8. The company’s directors have reduced their initial list of projects to five, the expected cash flows of which are set out below:
Project
19_7
19_8
19_9
19_0
NPV
1
-60,000
+30,000
+25,000
+1,600
2
-30,000
-20,000
+45,000
+1,300
3
-40,000
-50,000
+60,000
+70,000
+8,300
4
0
-80,000
+55,000
+900
5
+10,000
+40,000
+7,900
None of the five projects can be delayed and all are divisible. Cash flows arise on the first day of the year. The
minimum return required by shareholders of Mace Ltd is 10 per cent p.a. Which projects should Mace Ltd accept if the capital available for investment is limited to £100,000 on 1 January 19_7, but readily available at 10 per cent p.a. on 1 January 19_8 and subsequently?
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