A. Since the projects are mutually exclusive, which project would you recommend? Justify your recommendation. B. Suppose that the projects are independent projects, which project (s) would you recommend? Justify your recommendation.
A company is considering two mutually exclusive investments with a discount rate of 10%.
The cash flows of the projects over time follows:
| Time | Project A | Project B |
| 0 | - RM300,000 | - RM405,000 |
| 1 | - RM387,000 | RM134,000 |
| 2 | - RM193,000 | RM134,000 |
| 3 | - RM100,000 | RM134,000 |
| 4 | RM600,000 | RM134,000 |
| 5 | RM600,000 | RM134,000 |
| 6 | RM850,000 | RM134,000 |
| 7 | - RM180,000 | RM0 |
|
|
|
|
|||
|
Time |
Project A |
Project B |
|
Project A |
Project B |
|
0 |
-300,000 |
-405,000 |
1.0000 |
(300,000.00) |
(405,000.00) |
|
1 |
-387,000 |
134,000 |
0.9091 |
(351,818.18) |
121,818.18 |
|
2 |
-193,000 |
134,000 |
0.8264 |
(159,504.13) |
110,743.80 |
|
3 |
-100,000 |
134,000 |
0.7513 |
(75,131.48) |
100,676.18 |
|
4 |
600,000 |
134,000 |
0.6830 |
409,808.07 |
91,523.80 |
|
5 |
600,000 |
134,000 |
0.6209 |
372,552.79 |
83,203.46 |
|
6 |
850,000 |
134,000 |
0.5645 |
479,802.84 |
75,639.51 |
|
7 |
-180,000 |
0 |
0.5132 |
(92,368.46) |
- |
|
Net present value |
|
|
|
283,341.45 |
178,604.93 |
Question:
A. Since the projects are mutually exclusive, which project would you recommend?
Justify your recommendation.
B. Suppose that the projects are independent projects, which project (s) would you
recommend? Justify your recommendation.
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