Pureit Co is a medium-sized, all equity-financed, unquoted company which specializes in the development and production of water- and air-purifying devices to reduce the emission of effluents. Its small but ingenious R & D team has recently made a technological breakthrough which has revealed a number of attractive investment opportunities. It has applied for patents to protect its rights in all these areas. However, it lacks the financial resources required to exploit all of these projects, whose required outlays and post-tax NPVs are listed in the table below. Pureit's managers consider that delaying any of these projects would seriously undermine their profitability, as competitors bring forward their own new developments. All projects are thought to have a similar degree of risk.

The NPVs have been calculated using as a discount rate the 18% post-tax rate of return which Pureit requires for risky R & D ventures. The maximum amount available for this type of investment is $400,000, corresponding to Pureit's present cash balances, built up over several years' profitable trading. Projects A and C are mutually exclusive and no project can be sub-divided. Any unused capital will either remain invested in short-term deposits or used to purchase marketable securities, both of which offer a return well below 18% post-tax.