Question
You work for the 3T company, which expects to earn at least 18 percent on its investments. You have to choose between two similar projects
You work for the 3T company, which expects to earn at least 18 percent on its investments. You have to choose between two similar projects Omega or Alpha. Below is the cash information for each project. Your analysts predict that inflation rate will be a stable with 3 percent over the next 7 years. Which of the two projects would you fund if the decision is based only on financial information? Give reasons for you answer.
Omega | Alpha | ||||||
Year 0 | Inflow (k) | Outflow (K) | Netflow (K) | Year | Inflow (k) | Outflow (k) | Netflow (k) |
Y0 | 0 | 225,00 | -225,000 | Y0 | 0 | 300,000 | -300,000 |
Y1 | 0 | 190,000 | -190,000 | Y1 | 50,000 | 100,000 | -50,000 |
Y2 | 150,000 | 0 | 150,000 | Y2 | 150,000 | 0 | 150,000 |
Y3 | 220,000 | 30,000 | 190,000 | Y3 | 250,000 | 50,000 | 200,000 |
Y4 | 215,000 | 0 | 215,000 | Y4 | 250,000 | 0 | 250,000 |
Y5 | 205,000 | 30,000 | 175,000 | Y5 | 200,000 | 50,000 | 150,000 |
Y6 | 197,000 | 0 | 197,000 | Y6 | 180,000 | 0 | 180,000 |
Y7 | 100,000 | 30,000 | 70,000 | Y7 | 120,000 | 30,000 | 90,000 |
Total | 1,087,000 | 505,000 | 582,000 | Total | 1,200,000 | 530,000 | 670,000 |
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