Question: 18. A company is considering two mutually exclusive projects. The initial investment required for both the projects is Rs 10,00,000 each. The projects have a

18. A company is considering two mutually exclusive projects. The initial investment required for both the projects is Rs 10,00,000 each. The projects have a life of 5 years and straight line method of depreciation is used. The required rate of return is 15% and the company pays 50% tax. The cash inflows before depreciation and taxation are:

Year Project A Project B 1 Rs 7,00,000 Rs 8,00,000 2 8,00,000

Which project is acceptable under NPV and IRR methods?

Year Project A Project B 1 Rs 7,00,000 Rs 8,00,000 2 8,00,000 6,00,000 3 8,00,000 10,00,000 4 9,00,000 7,00,000 5 6,00,000 6,00,000

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