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28 Sep 2019
Question:
AST Company is attempting to select among the two mutuallyexclusiveprojects both of
which cost Rs. 100,000. The firm has a cost of capital equal to13%.After-tax cash
inflows associated with each project are shown in thefollowingtable :
Year ProjectA(Rs.) ProjectB (Rs.)
1 40,000 45,000
2 25,000 25,000
3 35,000 20,000
4 5,000 20,000
5 20,000 20,000
REQUIRED :
(i) Calculate the Payback Period for each project. (2+3)
(ii) Calculate the Net Present Value (NPV) of eachproject.(5+5)
(iii) Calculate the Internal Rate of Return (IRR) for eachproject.(6+6)
(IRR must be calculated by using âTrial & Error MethodwithInterpolation
Formulaâ. IRR calculated directly by using Excel orFinancialCalculators, will
not be awarded full marks.)
(iv) Summarize and compare the above findings for both projectsandindicate which
project you would recommend and why? (3)
Question:
AST Company is attempting to select among the two mutuallyexclusiveprojects both of
which cost Rs. 100,000. The firm has a cost of capital equal to13%.After-tax cash
inflows associated with each project are shown in thefollowingtable :
Year ProjectA(Rs.) ProjectB (Rs.)
1 40,000 45,000
2 25,000 25,000
3 35,000 20,000
4 5,000 20,000
5 20,000 20,000
REQUIRED :
(i) Calculate the Payback Period for each project. (2+3)
(ii) Calculate the Net Present Value (NPV) of eachproject.(5+5)
(iii) Calculate the Internal Rate of Return (IRR) for eachproject.(6+6)
(IRR must be calculated by using âTrial & Error MethodwithInterpolation
Formulaâ. IRR calculated directly by using Excel orFinancialCalculators, will
not be awarded full marks.)
(iv) Summarize and compare the above findings for both projectsandindicate which
project you would recommend and why? (3)
AST Company is attempting to select among the two mutuallyexclusiveprojects both of
which cost Rs. 100,000. The firm has a cost of capital equal to13%.After-tax cash
inflows associated with each project are shown in thefollowingtable :
Year ProjectA(Rs.) ProjectB (Rs.)
1 40,000 45,000
2 25,000 25,000
3 35,000 20,000
4 5,000 20,000
5 20,000 20,000
REQUIRED :
(i) Calculate the Payback Period for each project. (2+3)
(ii) Calculate the Net Present Value (NPV) of eachproject.(5+5)
(iii) Calculate the Internal Rate of Return (IRR) for eachproject.(6+6)
(IRR must be calculated by using âTrial & Error MethodwithInterpolation
Formulaâ. IRR calculated directly by using Excel orFinancialCalculators, will
not be awarded full marks.)
(iv) Summarize and compare the above findings for both projectsandindicate which
project you would recommend and why? (3)
Lelia LubowitzLv2
28 Sep 2019
