To maximize the total expected NPV within a limited budget, the firm should select projects with the highest incremental NPVs until the budget is fully allocated.
If the firm has a limited budget and all four projects have a positive NPV, the firm must select a combination of projects that offers the highest total expected NPV within the budget constraints. To determine this, the firm should calculate the incremental NPV for each project and rank them accordingly.
The firm should then select the projects with the highest incremental NPV until the budget is fully allocated. This will ensure that the firm maximizes its total expected NPV within the given budget.
For example, let's say the four projects are A, B, C, and D, with incremental NPVs of $100, $200, $150, and $175 respectively. If the firm has a budget of $400, it can select projects B and D, which have the highest incremental NPVs. The firm will have a total expected NPV of $375, which is the highest it can achieve with the given budget.