Maximizing NPV Under Capital Rationing

ABC Corporation has a capital budget of $1,000,000 for the upcoming fiscal year. The company has identified three mutually exclusive projects with the following expected cash flows and initial investments:

• Project X: Initial Investment: $500,000; Expected Cash Flows: Year 1: $300,000, Year 2: $300,000
• Project Y: Initial Investment: $600,000; Expected Cash Flows: Year 1: $400,000, Year 2: $300,000
• Project Z: Initial Investment: $700,000; Expected Cash Flows: Year 1: $500,000, Year 2: $400,000

Assuming a discount rate of 10%, which combination of projects maximizes the total net present value (NPV) without exceeding the capital budget?