Task1. AST Company is attempting to select between the two mutually exclusive projects both of which cost Rs. 100,000. The firm has cost of capital equal to 13%. After-tax cash inflows allocated with each project are given in the subsequent table:
|
SR no.
|
Year Project A (Rs.)
|
Project B (Rs.)
|
|
1
|
40,000
|
45,000
|
|
2
|
25,000
|
25,000
|
|
3
|
35,000
|
20,000
|
|
4
|
25,000
|
20,000
|
|
5
|
20,000
|
20,000
|
REQUIRED:
(i) Compute the Payback Period for each project.
(ii) Compute the Net Present Value (NPV) of each project.
(iii) Compute the Internal Rate of Return (IRR) for each project.
(IRR should be computed by using “Trial & Error Method with the Interpolation Formula”).
(iv) Summarize and compare the above findings for both projects and point out which project you would suggest and why?