A Company is considering two mutually exclusive projects. Project $K$ will require an initial cash investment

in machinery of $2,68,000.$ It is anticipated that the machinery will have a useful life of ten years at

the end of which its salvage will realise $20,500.$ The project will also require an additional investment

in cash, Sundry debtors and stock of $40,000.$ At the end of five years from the commencement of the

project balancing equipment for $45,000$ has to be installed to make the unit workable. The cost of

additional machinery will be written off to depreciation over the balance life of the project. The project

is expected to yield a net cash flow $($before depreciation$)$ of $1,00,000$ annually.

Project $R,$ which is the alternative one under consideration, requires an investment of $3,00,000$ in

machinery and as in Project $K$ investment in current assets of $40,000.$ The residual salvage value of the

machinery at the end of its useful life of ten years is expectec to be $25,000.$ The annual cash inflow

$($before depreciation$)$ from the project is worked at $80,000$ p$.$d$.$ for the first five years and $1,80,000$ per

annum for the next five years.

Depreciation is written off by the Company on sum$-$of$-$the years' digits method, $($i$.$e$.,$ if the life of the

asset is $10$ years, then in the ratio of $10,9,8$ and so on$).$ Income tax rate is $50\%.$ A minimum rate of return

has been calculated at $16\%.$ The present value of $1$ at interest of $16\%$ p$.$a$.$ is $0\mathrm{.}86,0\mathrm{.}74,0\mathrm{.}64,0\mathrm{.}55,0\mathrm{.}48,$

$0\mathrm{.}41,0\mathrm{.}35,0\mathrm{.}30,0\mathrm{.}26$ and $0\mathrm{.}23$ for years $1$ to $10$ respectively.

Which Project is better? Assuming no capital gains taxes, calculate the Net Present Value of each

Project.