Project A has an initial investment of Rs. 22 million and projected cash inflows of Rs. 60,00,000 for 5 years. Project B has an initial investment of Rs. 19.5 million and projected cash inflows of Rs. 55,00,000 for 5 years. Assume the discount rate to be 11 percent during Year 1 and thereby increases by 1 percent each year. a. Work out the NPV of the two projects and compare the results. Which project should be approved? Why? b. Work out the Undiscounted and Discounted Pay Back Period for the two projects. If the criterion is 5 years, which project should be considered based on Discounted PBP? c. Work out the Benefit Cost Ratio (BCR) for the two projects. Which project is acceptable? Why?
Project A has an initial investment of Rs. 22 million and projected cash inflows of Rs. 60,00,000 for 5 years. Project B has an initial investment of Rs. 19.5 million and projected cash inflows of Rs. 55,00,000 for 5 years. Assume the discount rate to be 11 percent during Year 1 and thereby increases by 1 percent each year. a. Work out the NPV of the two projects and compare the results. Which project should be approved? Why? b. Work out the Undiscounted and Discounted Pay Back Period for the two projects. If the criterion is 5 years, which project should be considered based on Discounted PBP? c. Work out the Benefit Cost Ratio (BCR) for the two projects. Which project is acceptable? Why?
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 3CMA
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 3 images
Recommended textbooks for you
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College