A company wants to decide which project to undertake out of two projects A and B....
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A company wants to decide which project to undertake out of two projects A and B. For this purpose, it wants to evaluate each project that have the same initial investment (cost) but different cash flows for the next three years. The following table gives information on these two projects. The discount rate to be used is 8 percent, which is the WACC for the company. Use two methods of capital budgeting: The Net Present Value (NPV) Method and the Internal Rate of Return (IRR) Method, to evaluate and compare the two projects. Based on the outcome of calculations, choose the best project A or B and explain your decision for each method. Show all your work for each method step by step. (8 Marks) Initial Investment and Cash Flows of Projects A and B in AED Initial Investment SALUT Year 1 Cash flow Year 2 Cash flow Year 3 Cash flow Project A - 150,000 20,000 90.000 70,000 Project B 150,000 50,000 90.000 60,000 A company wants to decide which project to undertake out of two projects A and B. For this purpose, it wants to evaluate each project that have the same initial investment (cost) but different cash flows for the next three years. The following table gives information on these two projects. The discount rate to be used is 8 percent, which is the WACC for the company. Use two methods of capital budgeting: The Net Present Value (NPV) Method and the Internal Rate of Return (IRR) Method, to evaluate and compare the two projects. Based on the outcome of calculations, choose the best project A or B and explain your decision for each method. Show all your work for each method step by step. (8 Marks) Initial Investment and Cash Flows of Projects A and B in AED Initial Investment SALUT Year 1 Cash flow Year 2 Cash flow Year 3 Cash flow Project A - 150,000 20,000 90.000 70,000 Project B 150,000 50,000 90.000 60,000
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SOLUTION To evaluate the two projects A and B we will use the Net Present Value NPV method and the I... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1259024962
6th Canadian edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
Posted Date:
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