TABLE 11.3 Investment Opportunities Schedule
(IOS) for Duchess Corporation
Internal rate Initial Cumulative
Investment of return (IRR) investment investmenta
opportunity (1) (2) (3)
A 15.0% $100,000 $ 100,000
B 14.5 200,000 300,000
C 14.0 400,000 700,000
D 13.0 100,000 800,000
E 12.0 300,000 1,100,000
F 11.0 200,000 1,300,000
G 10.0 100,000 1,400,000
aThe cumulative investment represents the total amount invested in projects with
higher returns plus the investment required for the corresponding investment
opportunity.
Weighted Average Cost of Capital and IRR (%)
0 500 1,000 1,500
Total New Financing or Investment ($000)
X
15.5
15.0
14.5
14.0
13.5
13.0
12.5
12.0
11.5
11.0
10.5
10.0
9.5
1,100
WMCC
E
D
C
B
A
F
G
11.5%
10.3%
9.8%
IOS
FIGURE 11.2
IOS and WMCC
Schedules
Using the IOS and WMCC to
select projects for Duchess
Corporation
funds necessary to finance all projects better than and including the correspond-
ing investment opportunity. Plotting the project returns against the cumulative
investment (column 1 against column 3) results in the firm’s investment opportu-
nities schedule (IOS). A graph of the IOS for Duchess Corporation is given in
Figure 11.2.
488 PART 4 Long-Term Financial Decisions