Question
An organization intends to invest out of two options Alpha and Beta available to them. The initial investment of the two project options are Rs
An organization intends to invest out of two options Alpha and Beta available to them. The initial investment of the two project options are Rs 5,00,000/- and Rs 6,70,000/- respectively. The earnings from the project are provided below. The organization intends to raise the required capital through issuing debt at an annual interest rate of 7%.
Estimate Payback period, discounted payback period, IRR and NPV of both the projects. (16 marks)
Based on the results of the capital budgeting techniques, suggest which project should be adopted and why? (4 marks)
| YEAR | EARNINGS | |
| PROJECT Alpha (Rs) | PROJECT Beta (Rs) | |
| 0 | -500000 | -670000 |
| 1 | 80,000 | 90,000 |
| 2 | 70,000 | 1,98,000 |
| 3 | 75,000 | 1,30,000 |
| 4 | 80,000 | 95,000 |
| 5 | 95,000 | 85,000 |
| 6 | 1,19,000 | 1,10,000 |
| 7 | 90,000 | 12,500 |
| 8 | 12,000 | 94,500 |
| 9 | 82,500 | 86,500 |
| 10 | 13,000 | 14,000 |
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Quantitative Analysis For Management
Authors: Barry Render, Ralph M. Stair, Michael E. Hanna, Trevor S. Hale
14th Edition
0137943601, 9780137943609
