Lewis Services is evaluating six investment opportunities (projects). The following table reflects each project’s net present value NPV and the respective initial investments required. All of these projects are independent. Project NPV Investment I 2,500 2,500 II 4,000 20,000 III 7,500 30,000 IV 8,000 40,000 V 2,000 10,000 VI 2,500 5,000 Lewis has an investment constraint of P50,000. Which combination of projects would represent the optimal
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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Lewis Services is evaluating six investment opportunities (projects). The following table reflects each project’s
Project NPV Investment
I 2,500 2,500
II 4,000 20,000
III 7,500 30,000
IV 8,000 40,000
V 2,000 10,000
VI 2,500 5,000
Lewis has an investment constraint of P50,000. Which combination of projects would represent the optimal investment that should be recommended to Lewis
Group of answer choices
I, III, and VI
I, II, III, IV, V, and VI
I, III, V, and VI
I, II, III, V, and VI
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