Question

A company is evaluating two mutually exclusive projects, A and B, both requiring an initial investment of ₹1,50,00,000. The cost of capital is 10%. The cash flows for each project over 5 years are as follows: • Project A: ₹45,00,000 each year • Project B: ₹20,00,000, ₹40,00,000, ₹60,00,000, ₹50,00,000, ₹40,00,000 Calculate the Net Present Value (NP

Q: Answer-A company is evaluating two mutually exclusive projects, A and B, both requiring an initial investme...

Using 10 discount factor Project A Annuity of 45,00,000 for 5 years PV 45,00,000 3.791 1,70,59,500 NPV 1,70,59,500 1,50,00,000 20,59,500 Project B Use individual discounting Yr 1 20,00,000 0.909 18,18,000 Yr 2 40,00,000 0.826 33,04,000 Yr 3 60,00,000 0.751 45,06,000 Yr 4 50,00,000 0.683 34,15,000 Yr 5 40,00,000 0.621 24,84,000 Total PV 1,55,27,000 NPV 5,27,000 Hence, Project A is better with higher NPV.