Question: Muscat Corporation is considering two mutually exclusive projects with the following details. Project A Project B Initial costs OMR 40,000 OMR 60,000 Estimated life 5
Muscat Corporation is considering two mutually exclusive projects with the following details.
|
| Project A | Project B |
| Initial costs | OMR 40,000 | OMR 60,000 |
| Estimated life | 5 years | 5 years |
| Scrap value | OMR 2,000 | OMR 4,000 |
| Estimated cash inflows (OMR) | ||
| Year | Project A | Project B |
| 1 | 10,000 | 40,000 |
| 2 | 20,000 | 20,000 |
| 3 | 20,000 | 10,000 |
| 4 | 6,000 | 6,000 |
| 5 | 4,000 | 4,000 |
The company hurdle rate is 12%
- Calculate the NPV of project A
- a) OMR 5,291
- b) OMR 5,192
- c) OMR 6,823
- d) OMR 6,328
- Calculate the NPV of project B
- a) OMR 4,468
- b) OMR 4,864
- c) OMR 4,321
- d) OMR 7,132
- Which project do you recommend Muscat corporation to invest in?
- Project A
- Reject both
- Accept both
- Project B
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