Capital Invest, Inc. uses a 12% hurdle rate for all capital expenditures and has done the following analysis for four projects for the upcoming year:

\begin{array}{lrrrr}&\underline{\text { Project } 1}&\underline{\text { Project } 2}&\underline{\text { Project } 3}&\underline{\text { Project } 4}&\\\text { Initial capital outlay } & \$ 200,000 & \$ 298,000 & \$ 248,000 & \$ 272,000 \\\text { Annual cash inflows: } & & & & \\\text { Year 1 } & \$ 65,000 & \$ 100,000 & \$ 880,000 & \$ 95,000 \\\text { Year 2 } & 70,000 & 135,000 & 95,000 & 125,000 \\\text { Year 3 } & 80,000 & 90,000 & 90,000 & 90,000 \\\text { Year 4 } & 40,000 & 65,000 & 80,000 & 60,000 \\\text { Net present value } & (3,789) & 4,276 & 14,064 & 14,662 \\& & & & \\\text { Profitability Index } & 0.98 & 1.01 & 1.06 & 1.05 \\\text { Internal rate of return } & 11 \% & 13 \% & 14 \% & 15 \%\end{array}

Which project(s) should Capital Invest, Inc. undertake during the upcoming year if it has only $600,000 of funds available?
A) Projects 1 and 3
B) Projects 2, 3, and 4
C) Projects 2 and 3
D) Projects 3 and 4

The Conroy Co

Multiple Choice

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