Question: NOTE: SUBJECT BUSIN ESS FINANCE SOLUTION REQUIRED ON THE SAME PAGE PLEASE AND NEED CORRECT SOLUTION Alfa Corporation has identified the following two mutually exclusive
NOTE: SUBJECT BUSINESS FINANCE SOLUTION REQUIRED ON THE SAME PAGE PLEASE AND NEED CORRECT SOLUTION
Alfa Corporation has identified the following two mutually exclusive projects. The CFO of the company wants to evaluate the identified projects. For this purpose he asked Mr. Naveed to evaluate those projects and establish their feasibility with the help of different capital budgeting techniques. Following are the details of the two mutually exclusive projects.
| Period | Project A | Project B |
|
| (Rs.) | (Rs.) |
| 0 | -42,000 | -42,000 |
| 1 | 25,000 | 15,000 |
| 2 | 21,000 | 17,000 |
| 3 | 15,000 | 23,000 |
| 4 | 11,000 | 27,000 |
As per the company policy, Mr. Naveed decided to evaluate both projects with the help of IRR and NPV techniques of capital budgeting.
Requirements:
- What is the IRR for each of these projects? Which project company should accept according to IRR rule?
- What is the NPV for each of these projects? If the required rate of return is 12 percent. Which project company should accept according to NPV rule?
III.If the decision on the basis of NPV is different than that of IRR, which particular criteria company should prefer and why?
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