Question: GK industries are in process of choosing the better of two equal risk mutually exclusive capital expenditure projects A and B.The relevant cash flows are shown in the following table. The firm's cost of capital (i) is 14 %.
Project A Project B
|
Initial Investment
|
Rs 28,500
|
Rs 28,500
|
|
Year
|
Cash Inflows (CF)
|
|
1
|
10,000
|
11,000
|
|
2
|
10,000
|
10,000
|
|
3
|
10,000
|
9,000
|
|
4
|
10,000
|
8,000
|
|
|
|
|
- Calculate the net present value (NPV) for each project.
- Calculate the internal rate of return (IRR) for each project.
- From the above calculations indicate which project you would recommend.
- Draw the net present value profiles for each project on the same set of axes.