Which of the following competing projects would you recommend using (a) Payback Period, (b) Payback Profitability and

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● Which of the following competing projects would you recommend using

(a) Payback Period,

(b) Payback Profitability and

(c) Net Present Value Methods?

Project I Project II Initial outlay (`) 20,000 25,000 Estimated life (years) 5 7 Estimated Net Cash flow (`)

End of year 1 5,000 5,000 2 6,000 5,000 3 4,000 5,000 4 4,000 5,000 5 6,000 5,000 6 — 5,000 7 — 5,000 Estimated scrap value Nil Nil Discounting rate may be taken at 10% p.a. and the P.V. of `1 to be received at the end of each year at 10% is given below:

Year 1 2 3 4 5 6 7 P.V. (`) 0.909 0.826 0.751 0.683 0.621 0.564 0.513 How would you rationalize conflicting results, if any, in the present case?

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Financial Management

ISBN: 9789352605606

1st Edition

Authors: Swapan Sarkar, Bappaditya Biswas, Samyabrata Das, Ashish Kumar Sana

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