Question
Q No. 3:M/s Sons & Sons is considering two projects, A & B, with cash flows as shown below: period Cash Flow of Project A
Q No. 3:M/s Sons & Sons is considering two projects, A & B, with cash flows as shown below:
period | Cash Flow of | |
Project A | Project B | |
0 | -90,000 | -150,000 |
1 | 30,000 | 72,000 |
2 | 30,000 | 35,000 |
3 | 30,000 | 40,000 |
4 | 30,000 | 25,000 |
a. Calculate discounted payback period, net present value and internal rate of return for each project using opportunity cost of capital 13 % & 9% for project A & B respectively. (2Marks)
b. Which project(s) should be accepted if : (5 Marks)
(i) The projects are mutually exclusive and there is no capital constraint.
(ii) The projects are independent and there is no capital constraint.
(iii) The projects are independent and there is a total of $100,000 of financing for capital outlays in the coming period.
c. Why the cost of capital for A might be higher than for B. State possible reason(s) (2 Marks)
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