The company you work for wishes to undertake 2 projects with a capital outlay of K180, 000
Question:
The company you work for wishes to undertake 2 projects with a capital outlay of K180, 000 and its cost of capital is 10%. You are the Finance Manager and has been asked to advise which of the 2 projects could be chosen. The target period is 3 yrs.
Here are the projects’ net cash flows (in thousands of kwachas):
Year 0 1 2 3 4 5
Project J (K’000) -180 120 80 50 40 10
Project K (K’000) -180 70 90 100 115 120
Required
Using the Payback period, which project would be selected if the projects are:
independent of each other
exclusive
Using the NPV, which project would be chosen if the projects are:
Independent
Exclusive
International Financial Reporting and Analysis
ISBN: 978-1408075012
5th edition
Authors: David Alexander, Anne Britton, Ann Jorissen