Consider the following investment projects:
Cash Flows (Rs)
Project C0 C1 C3
L – 3,000 2,250 + 2,700
M – 3,950 + 2,700 + 3,240
(a) Calculate the NPV and PI for each project assuming a 20 per cent cost of capital.
(b) Which project should be accepted if only one project can be accepted because of capital rationing.