Question

MCARTECH Pvt. Ltd. is considering two mutually exclusive capital investments. The
project’s expected net cash flows are as follows:
Expected Cash Flows
Year Project A Project B
0 -500 -875
1 100 150
2 110 200
3 120 250
4 175 375
5 240 530
6 300 680
a. If you were told that each project’s cost of capital was 12%, which project should be
selected using the NPV criteria?
b. What is the profitability index for each project if the cost of capital is 12%?
c. What is the regular payback period for these two projects?

Answer 1

Answer:

Capital budgeting indicates the evaluation of the profitability of possible investments and projects that can enhance the revenue of the company.

Computation of the NPV, IRR, payback period, and the profitability index:



(a) As per the NPV criteria, project B should be selected because the NPV of project B is higher than the NPV of project A.

(b) The IRR of project A and project B is 19.12% and 27.54% respectively.

It is computed by using the following method:

(c) The regular payback period of project A and project B is 3.62 years and 2.90 years respectively.

(d)  The profitability index of project A and project B is 1.23 and 1.51 respectively.

Answer 2

Answer:

want answer in table form