A company has to choose one of the
following two
mutually exclusive project
Investment required for each project is Rs.15,000.both the project have to be depreciated on straight line basis. the tax rate is 50%
Answers
Answer:
What is the question.. u have questioned improperly
Answer:
A company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs. 10,000 ( with no salvage value ) and a life of 5 years the company required rate of return is 10 % and it pays tax at a rate of 50 % . The project will be depreciated on a straight-line basis.
Explanation:
If considering mutually exclusive options, a company must weigh the opportunity cost, or what it would be giving up by choosing each option. The time value of money (TVM) is often considered when deciding between two mutually exclusive choices.
Mutually Exclusive Projects is the term which is used generally in the capital budgeting process where the companies choose a single project on the basis of certain parameters out of the set of the projects where acceptance of one project will lead to rejection of the other projects.
When considering two mutually exclusive projects, the financial manager should always select the project with the higher internal rate of return, provided the projects have the same initial cost.
If two mutually exclusive projects are being compared, the short-term project might have a higher ranking under the NPV criterion if the cost of capital is high, but the long-term project might be deemed better if the cost of capital is low.
The simplest way of choosing among mutually exclusive projects with equal lives is to compute the net present values of the projects and choose the one with the highest net present value. This decision rule is consistent with firm value maximization.