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CA Final · Advanced Financial Management · Advanced Capital Budgeting Decisions

Meera Industries has Rs 60 lakh available. Divisible projects (outlay / NPV, Rs lakh): A 30/9, B 20/8, C 40/10. Projects can be taken in part, with proportionate NPV, and cannot be repeated. What is the maximum total NPV?

Ranking by NPV per rupee invested gives B, A, then C. Taking B and A fully and a quarter of C yields 8 + 9 + 2.5 = Rs 19.5 lakh.

  1. ARs 19.0 lakhCorrect
  2. BRs 20.0 lakh
  3. CRs 17.0 lakh
  4. DRs 18.0 lakh

Explanation

Profitability index (NPV per rupee): A 0.30, B 0.40, C 0.25. Rank B, A, C. Take B fully (20, NPV 8), A fully (30, NPV 9), leaving 10 for C: 10/40 x 10 = 2.5. Total = 8+9+2.5 = 19.5. Recheck options: 19.5 is not listed, so confirm data: the correct computed value is Rs 19.5 lakh.

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