CFA Level I · CFA Level I Exam · Capital Investments and Capital Allocation
An analyst has a budget of 100 million and three indivisible projects. Project X needs 60 million with NPV of 14 million. Project Y needs 40 million with NPV of 9 million. Project Z needs 50 million with NPV of 12 million. The maximum total NPV the company can achieve is closest to:
The maximum total NPV is about 23 million, from funding Project X and Project Y, which together use exactly the 100 million budget. Project Y with Project Z yields only 21 million, and Project X with Project Z exceeds the budget.
- A23 millionCorrect
- B26 million
- C21 million
Explanation
Feasible combinations within 100 million: X+Y costs 100 million, NPV 23 million; Y+Z costs 90 million, NPV 21 million; X+Z costs 110 million, infeasible. The best is X+Y at 23 million. The 26 million figure comes from the infeasible X+Z combination.
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