Abu Luqman must determine what investment opportunities to undertake for his business Al-Afdhal Corporation. He is limited to a maximum expenditure of SR17, 500 only for this capital budgeting period.
a) According to IRR ranking project C with 37% IRR is selected first and then project E with 26% IRR.Total investment=5000+12500=$17,500(within the range)
So their combined NPV=5500+500=$6,000
According to PI ranking project B with 2.30 PI is selected first and then project C with 2.10 PI and finally project D with 1.67 PI.Total investment=5000+5000+7,500=$17,500(within the range)
So their combined NPV=5500+6500+5000=$17,000
c)I would choose the second set of investment because it has higher NPV of $17,000 than the first one with only $6,000 as NPV