You have a tract of land on which trees can be grown. The initial cost of planting the trees is Rs 80,000. The net revenue realisable from the harvesting of trees would be as follows:

The opportunity cost of capital is 10 per cent. What is optimum time for harvesting the trees? Assume continuous compounding.

A firm is considering the following two Projects,MandN:

Project M Project N

Investment (Rs) 250,000 250,000

Annual net cash inflow (Rs) 80,000 60,000

Life (years) 6 10

Cost of capital (per cent) 10 10

Because of capital rationing imposed by management, the firm can choose only one project. Which project should be selected? Why?

Answer rating: 100% (QA)

To determine the optimum time for harvesting the trees we need to calculate the present value of the ... View the full answer