An Investor Has a Budget of $5 Million

question 19

Multiple Choice

$\begin{array} { l c l } & \text { Initial Investment } & { \text { Cash flow } } \\\text { Project A } & \text { \$5 million } & \$ 2 \text { million per year for four years } \\\text { Project B } & \$ 3 \text { million } & \$ 1 \text { million per year for five years } \\\text { Project C } & \text { \$2 million } & \$ 1 \text { million per year for four years } \\\text { Project D } & \$ 3 \text { million } & \$ 1.5 \text { million per year for three years }\end{array}$
An investor has a budget of $5 million. He can invest in the projects shown above. If the cost of capital is 6%, what investment or investments should he make?

• A) Project A
• B) Project B
• C) Project B and Project C
• D) Project C and Project D

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Definitions:

Creditors

Individuals or institutions that lend money or extend credit to others.

Liabilities

Liabilities are financial obligations or debts that a company owes to external parties, which must be settled over time through the transfer of economic benefits including money, goods, or services.