3. National Electronic Ltd. an electronic goods manufacturing company, is producing a large range of electronic goods. It has under consideration two projects X and Y, each costing `120 lakhs.

The projects are mutually exclusive and the company is considering the question of selecting one of the two. Cash flows before depreciation and tax have been worked out for both the projects and the details are given below. X has a life of 8 years and Y has a life of 6 years. Both will have zero salvage value at the end of their operational lives. The company is already making profits and its tax rate is 50%. The cost of capital is 15%.

(` in lakhs)

Year Project X Project Y PVIF @ 15%

1 25 40 0.870 2 35 60 0.756 3 45 80 0.685 4 65 50 0.572 5 65 30 0.497 6 55 20 0.432 7 35 - 0.376 8 15 - 0.327 The company follows straight line method of depreciating assets. Advise the company regarding the selection of the project. [ICWA Inter June 1996]