Total Marks 20
Question
GK industries are in process of choosing the better of two equal risk
mutually exclusive capital expenditure projects A and B.The relevant cash
flows are shown in the following table. The firm’s cost of capital (i) is 14 %.
Initial Investment
Year
1
2
3
4
Project A
Rs 28,500
10,000
10,000
10,000
10,000
Project B
Rs 28,500
Cash Inflows (CF)
11,000
10,000
9,000
8,000
a Calculate the net present value (NPV) for each project.
b Calculate the internal rate of return (IRR) for each project.
c From the above calculations indicate which project you would
recommend.
d Draw the net present value profiles for each project on the
same set of axes.
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