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A firm is evaluating two mutually exclusive projects with the following expected cash flows. The initial investment for each project is 300 lakhs. Project A:
A firm is evaluating two mutually exclusive projects with the following expected cash flows. The initial investment for each project is ₹300 lakhs.
Project A:
Year | Cash Flow (₹ in lakhs) |
1 | 120 |
2 | 150 |
3 | 170 |
4 | 190 |
5 | 180 |
Project B:
Year | Cash Flow (₹ in lakhs) |
1 | 100 |
2 | 130 |
3 | 160 |
4 | 200 |
5 | 220 |
The discount rate is 10%.
Required:
- Calculate the NPV of both projects.
- Determine the IRR for each project.
- Calculate the Payback Period for both projects.
- Recommend which project the firm should undertake based on financial metrics.
- Assess the sensitivity of NPVs to a change in discount rate to 12%.
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