21) Evaluation of capital budgeting projects (15 points)
Nest Corporation is experiencing hard capital rationing and will not be able to invest more than $1,000,000 this year.
The firm is considering four mutually exclusive projects with the cash flows presented below. If the firm's cost of
capital is 8% per year, answer the following questions:
CFs of Project CFs of Project CFs of Project CFs of Project
Period
A, S
B, 5
C, S
D, S
0
-500,000
-600,000
-500,000
-400,000
1
200,000
300,000
200,000
100,000
2
250,000
200,000
200,000
300,000
3
300,000
300,000
300,000
100,000
a) Find each project's net present value and interpret the results (4 points)
b) Find each project's profitability index and interpret the results (4 points)