The Company believes it has found 10 projects, of which 7 have positive NPV's given the company's cost of capital. If the company were to invest in all of these projects it would require a capital expenditure of $65 million. According to NPV theory, the company should invest in all of these projects, because each has a positive return. The company however, has made the decision to limit its capital expenditure to $40 million. List and briefly discuss 3 practical explanations why the company might forgo these value adding projects
The Company believes it has found 10 projects, of which 7 have positive NPV's given the company's cost of capital. If the company were to invest in all of these projects it would require a capital expenditure of $65 million. According to NPV theory, the company should invest in all of these projects, because each has a positive return. The company however, has made the decision to limit its capital expenditure to $40 million. List and briefly discuss 3 practical explanations why the company might forgo these value adding projects
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The Company believes it has found 10 projects, of which 7 have positive NPV's given the company's cost of capital. If the company were to invest in all of these projects it would require a capital expenditure of $65 million. According to NPV theory, the company should invest in all of these projects, because each has a positive return. The company however, has made the decision to limit its capital expenditure to $40 million. List and briefly discuss 3 practical explanations why the company might forgo these value adding projects.
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