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AST Company is attempting to select among the two mutually exclusive projects both

AST Company is attempting to select among the two mutually exclusive projects both of which cost Rs. 100,000. The firm has acost of capital equal to 13%. After-tax cash in flows associated with each project are shown in the following table :

Year

Project A (Rs.)

Project B (Rs.)

1

40,000

45,000

2

25,000

25,000

3

35,000

20,000

4

25,000

20,000

5

20,000

20,000

REQUIRED :

(i)        Calculate the Payback Period for eachproject.                                                       (2+3)

(ii)       Calculate the Net Present Value (NPV) of eachproject.                                    (5+5)

(iii)    Calculate theInternal Rate of Return (IRR) for eachproject.          (6+6) (IRR must be calculated by using “Trial & Error Method with Interpolation Formula”. IRR calculateddirectly by using Excel or Financial Calculators, will not be awarded full marks.)

(iv)     Summarize and compare the above findings for both projects and indicate which project you would recommend andwhy?          (3)

May 01 2018 Read more Less More

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