Question: Construction Corp is assessing two projects, Project Build1 and Project Build2. The cash flows for these projects are: Year Project Build1 Project Build2 0 $(500)
Construction Corp is assessing two projects, Project Build1 and Project Build2. The cash flows for these projects are:
Year | Project Build1 | Project Build2 |
0 | $(500) | $(450) |
1 | 150 | 130 |
2 | 180 | 160 |
3 | 210 | 190 |
4 | 240 | 220 |
The discount rate is 14%. Analyze the following:
a. Calculate the payback period for each project. b. Determine the NPV for both projects. c. Compute the IRR for each project. d. Evaluate which project has a better payback period. e. Provide a strategic recommendation based on financial analysis.
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A company is considering the purchase of a new equipment with a capital cost of Rs. 4,50,000. The equipment has a useful life of 7 years and no salvage value at the end. The equipment is expected to generate annual net operating income after depreciation of Rs. 85,000. The company's tax rate is 40%. The present value factors for 7 years are given below:
Present Value Factors:
Discounting Rate | Cumulative Factor |
10% | 4.87 |
12% | 4.56 |
14% | 4.29 |
16% | 4.04 |
18% | 3.82 |
Requirements:
- Calculate the annual net cash inflow after tax.
- Determine the present value of the cash inflows at each discount rate.
- Calculate the net present value (NPV) at each discount rate.
- Find the internal rate of return (IRR) of the proposal.
- Decide if the equipment should be purchased if the company's required rate of return is 12%.
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