The Lake Tahow Ski Resort is comparing a half dozen capital improvement projects. It has allocated $1 million for capital budgeting purposes. The following proposals and associated profitability indexes have been determined. The projects themselves are independent of one another. PROFITABILITY PROJECTS AMOUNT INDEX Extend ski lift 3 $500,000 1.22 Build a new sports shop 150,000 0.95 Extend ski lift 4 350,000 1.20 Build a new restaurant 450,000 1.18 Build addition to housing complex 200,000 1.19 Build an indoor skating rink 400,000 1.05 Required: a). If strict capital rationing for only the current period is assumed, which of the investments should be undertaken? b) Calculate the NPV of any three projects in the above list from the given data

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

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The Lake Tahow Ski Resort is comparing a half dozen capital improvement projects. It has allocated $1 million for capital budgeting purposes. The following proposals and associated profitability indexes have been determined. The projects themselves are independent of one another.

PROFITABILITY

PROJECTS AMOUNT INDEX

Extend ski lift 3 $500,000 1.22
Build a new sports shop 150,000 0.95
Extend ski lift 4 350,000 1.20
Build a new restaurant 450,000 1.18
Build addition to housing complex 200,000 1.19
Build an indoor skating rink 400,000 1.05

Required:

a). If strict capital rationing for only the current period is assumed, which of the investments should be undertaken?

b) Calculate the NPV of any three projects in the above list from the given data

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