Question
Capital budgeting [5 marks] Mrs Alis is an intelligent business woman. She makes her investments after a very thoughtful process. In January 2018 , her
Capital budgeting [5 marks]
- Mrs Alis is an intelligent business woman. She makes her investments after a very thoughtful process. In January 2018 , her manager has shown her some projects with the following details
Option A
Investment into a towel business that initially cost $200,000 and then will generate cash inflow of $24000 per year for the next 10 years
Option B
Investment into a detergent business that initially cost $190,000 and then will generate cash inflow of $20,000 for each of next 12 years.
The rate of return associated with both the investments is 12%.
- Calculate net present value (NPV) and internal rate of return (IRR) of both the investments.
[3 marks]
- Comment on which investment Mrs Alis should pick on the basis NPV and IRR.
[2 marks]
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
14th edition
007745443X, 978-0073530727, 73530727, 978-0077454432
