22. The XYZ company has total excess cash funds of Rs 60,000 to invest in various projects...
Question:
22. The XYZ company has total excess cash funds of Rs 60,000 to invest in various projects during this month and the next, according to the cash-flow statement prepared by the accounting department. The firm has been offered the following investment opportunities. It can participate immediately (at the start of this month) in a project by investing Rs 60,000 which is equally likely to result in a net profit of Rs 20,000 or a loss of Rs 10,000 within the month. In effect, the company will be able to reclaim its principal, with either a profit or loss, by the month's end. At the same time, the firm is informed that in one month from now, it will be given the opportunity of investing Rs 55,000 in another investment, which is equally likely to result in a net profit of Rs 15,000 or a net loss of Rs 5,000. Assuming that this company examines its cash position every two months to determine the feasibility of investing excess cash, advise this company as to whether it should invest in project 1 of this month or invest in project 2 of the next month or invest in projects 1 and 2 together if the objective is to maximise the expected profits over the next two months.
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