Question
Suppose that a company is considering for investment in a projects proposed by l regional state in two different and mutually exclusive projects: details regarding
Suppose that a company is considering for investment in a projects proposed by l regional state in two different and mutually exclusive projects: details regarding cost of investment and expected cash flows are given as follows: The two Projects have an initial in vestment cost for Project one and Project two Br. 1,780,000 and Br. 3,220,000 respectively. The discount rate for project evaluation is 12% which is the market rate.
Additionally the operating costs and expected cash flows are given under the following table.
Year Project one Project Y Operating cost Cash inflow Opportunity cost Cash inflow
1 Br. 420,000 Br. 685,000
2 80,000 515,000 85,000 595,000
3 375,000 650,000
4 60,000 500,000 702,000
5 565,000 92,000 615,000
Required: which project should be selected by the company using the following methods
a. Payback period method
b. Net present value method
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