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28 Sep 2019
AST Company is attempting to select among the twomutuallyexclusive projects both of which cost Rs. 100,000. The firm has a cost of capital equalto13%. After-tax cash inflows associated with each project are shown in thefollowingtable :
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 Payback Period for each project. (2+3) (ii) Calculate the Net Present Value (NPV) of eachproject.(5+5) (iii) Calculate the Internal Rate of Return (IRR) foreachproject. (6+6) (IRR must be calculated by using âTrial & ErrorMethod withInterpolation Formulaâ. (iv) Summarize and compare the above findings for bothprojectsand indicate which project you would recommend and why?
AST Company is attempting to select among the twomutuallyexclusive projects both of
which cost Rs. 100,000. The firm has a cost of capital equalto13%. After-tax cash
inflows associated with each project are shown in thefollowingtable :
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 Payback Period for each project. (2+3)
(ii) Calculate the Net Present Value (NPV) of eachproject.(5+5)
(iii) Calculate the Internal Rate of Return (IRR) foreachproject. (6+6)
(IRR must be calculated by using âTrial & ErrorMethod withInterpolation
Formulaâ.
(iv) Summarize and compare the above findings for bothprojectsand indicate which
project you would recommend and why?
Casey DurganLv2
28 Sep 2019
