AST Company is attempting to select among the two mutually exclusive projects both of which cost Rs. 100,000. The firm has a cost of capital equal to 13%. After-tax cash inflows associated with each project are shown in the following table:
|
Year
|
Project A (Rs.)
|
Project B (Rs.)
|
|
1
|
40,000
|
45,000
|
|
2
|
25,000
|
25,000
|
|
3
|
35,000
|
20,000
|
|
4
|
25,000
|
20,000
|
|
5
|
20,000
|
20,000
|
REQUIRED :
(i) Calculate the Payback Period for each project.
(ii) Calculate the Net Present Value (NPV) of each project.
(iii) Calculate the Internal Rate of Return (IRR) for eachproject. (IRR must be calculated by using "Trial & Error Method with Interpolation Formula". IRR calculated directly by using Excel or Financial Calculators, will not be awarded full marks.)
(iv) Summarize and compare the above findings for both projects and indicate which project you would recommend andwhy?