7. Compute the rate of return of the following projects: Cash Flows (Rs) Projects Co C C c; X Q - 20,000 - 20,000 +8,326 0 +8,326 0 +8,326 + 24,978 Which project would you recommend? Why?
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1
Answer:
Correct option is
A
6000
Given: Principal for the first year (P)=Rs.20,000,r=12%
We know that A=P(1+
100
r
)
n
Amount after the first year =20,000(1+
100
12
)
1
=20,000(
100
112
)
=Rs.22,400
Money repays at the end of first year =Rs.8,400 (given)
Principal for the second year =Rs.22,400−Rs.8,400
=Rs.14,000
Amount after second year =14,000(1+
100
12
)
1
=Rs.15,680
∴ The loan outstanding at the beginning of the third year
=Rs.15,680−Rs.9,680
=Rs.6,000
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