Question:
AST Company isattempting to select among the twomutually exclusive projects bothof
which cost Rs.100,000. The firm has a cost ofcapital equal to 13%. After-taxcash
inflows associatedwith each project are shown inthe following table :
Year
Project A (Rs.)
Project B (Rs.)
1
40,000
45,000
2
25,000
25,000
3
35,000
20,000
4
25,000
20,000
5
20,000
20,000
REQUIRED: (i) Calculate the PaybackPeriod for each project. (2+3)
(ii) Calculate the NetPresent Value (NPV)of each project. (5+5)
(iii) Calculate theInternal Rate of Return(IRR) for eachproject.(6+6)
(IRRmust be calculated by using âTrial& Error Method withInterpolation
Formulaâ. IRR calculated directly byusingExcel or Financial Calculators, will
not beawarded full marks.)
(iv) Summarize and compare theabove findings forboth projects and indicate which
project you would recommend andwhy? (3)
Question:
AST Company isattempting to select among the twomutually exclusive projects bothof
which cost Rs.100,000. The firm has a cost ofcapital equal to 13%. After-taxcash
Year | Project A (Rs.) | Project B (Rs.) |
1 | 40,000 | 45,000 |
2 | 25,000 | 25,000 |
3 | 35,000 | 20,000 |
4 | 25,000 | 20,000 |
5 | 20,000 | 20,000 |
(i) Calculate the PaybackPeriod for each project. (2+3)
(ii) Calculate the NetPresent Value (NPV)of each project. (5+5)
(iii) Calculate theInternal Rate of Return(IRR) for eachproject.(6+6)
(IRRmust be calculated by using âTrial& Error Method withInterpolation
Formulaâ. IRR calculated directly byusingExcel or Financial Calculators, will
not beawarded full marks.)
(iv) Summarize and compare theabove findings forboth projects and indicate which
project you would recommend andwhy? (3)
