Question: You have two exclusive projects 1 and 2 with a duration of 5 years. The information relating to the two projects is as follows: Initial

You have two exclusive projects 1 and 2 with a duration of 5 years. The information relating to the two projects is as follows: Initial investment: Project (1): $ 900,000 Project (2): $ 1,100,000 ($ 900,000 for assets and $ 200,000 for transport equipment). The net tax flows (including tax savings) associated with the two projects are as follows: Discount rate for flows associated with the two projects: 10% Resale at the end of the project (beginning of the 6th year): Project (1) 60% of the initial investment; Project (2): 60% of the value of the assets and 5% of that of the transport equipment.

Years 1 2 3 4 5
Project 1 370 000 370 000 370 000 470 000 470 000
Project 2 330 000 330 000 530 000 530 000 530 000

Questions A. What is the payback time for each project? If the target payback time is 2 years, what project should we invest in? B. What is the NPV of each of the two projects? According to this criterion, in which project should we invest?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!