Capital Budgeting - Worked Examples

Example 1 — Independent projects A, B, C have NPVs PHP 400k, -100k, and 250k with no capital constraint. Which pass the economic screen?

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Example 2 — Mutually exclusive alternatives X and Y have NPVs PHP 700k and PHP 900k on the same basis.

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Example 3 — A small project has IRR 35% and NPV PHP 180k; a mutually exclusive larger project has IRR 22% and NPV PHP 520k at the MARR. Which metric controls value selection?

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Example 4 — Project costs PHP 2M and the PV of future net inflows is PHP 2.6M. Find PI under the stated convention.

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Example 5 — Capital budget PHP 5M. A costs 3M with NPV 900k; B costs 2M with NPV 500k; C costs 4M with NPV 1.1M. Find the best feasible combination.

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Example 6 — Why might choosing the single project with highest PI fail under capital rationing?

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Example 7 — Project D is positive NPV only if Project E's utility upgrade is also built. How should D be classified?

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Example 8 — Two drainage projects share the same downstream capacity, so constructing both reduces the benefit of each. Can their stand-alone NPVs simply be added?

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Example 9 — Budget increases from PHP 6M to PHP 8M. What should be re-evaluated?

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Example 10 — Project has positive NPV but violates a mandatory safety requirement. Should capital budgeting select it?

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Example 11 — A project's NPV was computed from unlevered operating cash flows at an organizational MARR, then loan interest is also added as a project cost. What should be checked?

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Example 12 — Portfolio A has NPV PHP 2.0M but is highly sensitive to one uncertain revenue assumption; Portfolio B has NPV PHP 1.85M and remains positive across tested cases. What should the recommendation contain?

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Example 13 — Show numerically why a highest-PI-first rule can fail for indivisible projects. Budget = PHP 10M. A costs 6M with NPV 12M; B and C each cost 5M with NPV 9M.

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