Question
ABC Ltd is considering two projects; A and B. Each requires an investment of $100 millions. The cost of capital is 10%. Below is the
ABC Ltd is considering two projects; A and B. Each requires an investment of $100 millions. The cost of capital is 10%. Below is the summary of expected net cash flows in millions
YearProject AProject B
15010
24020
33030
41040
5150
6160
Questions
a)Calculate the discounted payback period for each project. Which project is likely to be selected using this method?
b)Calculate the Net Present Value (NPV) for each project. Which project is likely to be selected using this method?
c)Calculate the Internal Rate of Return (IRR)for each project. Which project is likely to be selected using this method?
d)Calculate the Profitability Index (PI) for each project. Which project is likely to be selected using this method?
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