Adriana Company is considering two alternative projects, X and Y. Both projects will have the same investment cost but different cash flows for the next 5 years:
PROJECT X PROJECT Y Year Cash Flow ($) Cash Flow ($) 0 (100,000) (100,000) 1 50,000 10,000 2 40,000 20,000 3 20,000 20,000 4 20,000 40,000 5 10,000 70,000
For these two independent projects X and Y, use the following capital budgeting techniques: 1. Payback Period 2. Accounting rate of return 3. Net Present Value 4. Profitability index ©Al Tareeqah Management Studies - 2018 5 and recommend acceptance/rejection and which project should be chosen by the company. A rate of 12% has been selected for the NPV analysis.