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Inatech is contemplating two different projects and decides to perform a financial analysis to determine which is more financially lucrative. Project A and B have
Inatech is contemplating two different projects and decides to perform a financial analysis to determine which is more financially lucrative. Project A and B have the cash flows as shown and Inatech uses a required rate of return of 10% and an inflation rate of 4%. Compute the (non-discount) payback in years and the net present value for both projects and offer advice as to the best course of action. (4 marks) Year A B 0 -$100,000 -$400,000 1 $60,000 $100,000 2 $20,000 $60,000 3 $60,000 $140,000 4 $80,000 $200,000 5 $600,000 $800,000 Inatech is contemplating to undertake Project B and perform a financial analysis to determine whether it is financially lucrative. Project B have the cash flows as shown below and Inatech uses a required rate of return of 20%. Compute the internal rate of return for the project to determine whether it is worth undertaking. (3 marks) Year B 0 -$400,000 1 $80,000 2 $120,000 3 $160,000 4 $160,000 5 $800,000
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