A company with $200,000 initial endowment has the following investment opportuni

A company with $200,000 initial endowment has the following investment opportuni

A company with $200,000 initial endowment has the following investment opportunities available:
Project I1 X2
1 $150,000 $180,000
2 $125,000 $140,000
3 $160,000 $175,000
4 $55,000 $70,000
Assuming perfect certainty, perfect capital markets, rational investors, a two-period world, and a
market rate of 15%, answer the following questions:
a. If the firm applies capital rationing such that it does not invest more than its initial endowment:
i. Which proposals should the firm undertake and why?
ii. What is the value of the firm after investing?
iii. If the firm pays a period 1 dividend of $40,000 and invests surplus period 1 funds in the
market, how does the change in dividend policy affect firm value?
b. If there is no capital rationing such that the firm raises additional funds for investment:
i. Which projects should the firm undertake and why?
ii. What is the value of the firm after investing?
iii. If the firm pays a period 1 dividend of $95,000 by raising additional funds from the market,
what is the value of the firm after changing its financing policy