Question
XYZ Ltd. is evaluating two exclusive projects that require an initial investment of 30,000 each and have a life of 5 years. The companys cost
XYZ Ltd. is evaluating two exclusive projects that require an initial investment of ₹30,000 each and have a life of 5 years. The company’s cost of capital is 15% and it pays tax at 30%. Depreciation is on a straight-line basis. The projects' net cash flows before taxes and the PV factors (at 15%) are given below:
Year | 1 | 2 | 3 | 4 | 5 |
Project 1 | 12,000 | 12,000 | 10,000 | 8,000 | 6,000 |
Project 2 | 9,000 | 11,000 | 11,000 | 10,000 | 9,000 |
PV factor | 0.870 | 0.756 | 0.658 | 0.572 | 0.497 |
You are required to:
- Calculate the NPV for both projects.
- Decide which project should be accepted.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Accounting Principles
Authors: Jerry Weygandt, Paul Kimmel, Donald Kieso
11th Edition
111856667X, 978-1118566671
