Question:
AST Company isattempting to select among the two mutually exclusive projects bothof which cost Rs. 100,000. The firm has a cost of capital equal to13%. After-tax cash inflows associated with each project are shownin the following table :
Years Project A(RS) Project B(RS)
1 40000 45000
2 25000 25000
3 35000 20000
4 25000 20000
5 20000 20000
REQUIRED:
(i) Calculate the Payback Period for each project.
(ii) Calculate the Net Present Value (NPV)of each project.
(iii) Calculate the Internal Rate of Return(IRR) for eachproject. (6+6)
(IRRmust be calculated by using “Trial & Error Method withInterpolation
Formula”.
(iv) Summarize andcompare the above findings for both projects and indicate whichproject you would recommend and why?