Question
The following information was provided for two mutual exclusive investment opportunities, only one of which may be selected. Project A Project B Initial Investment(CF 0
The following information was provided for two mutual exclusive investment opportunities, only one of which may be selected.
| Project A | Project B | |
| Initial Investment(CF0) | 100 000 | 90 000 |
| Year(t) | Profit for the year | |
| 1 | 50 000 | 35 000 |
| 2 | 40 000 | 35 000 |
| 3 | 30 000 | 33 000 |
| 4 | 30 000 | 70 000 |
| Resale cash value Year 4 | 20 000 | 30 000 |
Notes
o Profit is calculated after deducting straight line depreciation.
o The cost of capital is 18% per annum.
a) Calculate annual depreciation amount for each project.
b) Compute cash flow from operation for each project.
c) Estimate net present value for each project.
d) Based on analysis above, which project would you recommend for the firm.
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Ethics In Finance
Authors: John R. Boatright
3rd Edition
1118615824, 978-1118615829
