Your company is considering two mutually exclusive projects. X1 and X2; also con

Question

Your company is considering two mutually exclusive projects. X1 and X2; also considered are 2 projects, Y and Z. Independant of the X projects and each other. The project costs and the cash flows are shown below.

Projects X1 and X2 are equally risky, and the firms required rate of return is 12%. Which project should be accepted and which should be rejected? Please base your decision on any method, but justify the use of the method you have choosen.

Years X1 X2 Y Z 0 -$2000 -$2000 -$15000 -$25000 1 200 2000 5000 8500 2 600 200 5000 8500 3 800 100 5000 8500 4 1400 75 5000 8500

Explanation / Answer

Answer:

Project X1 Should be accepted because NPV is higher than project X2.

Project Z should be accepted because its npv is higher than other projects.

X1 X2 Y Z Particulars Time PVF (12%) Amount PV Amount PV Amount PV Amount PV Cash flow 0 1 -2000 -2000 -2000 -2000 -15000 -15000 -25000 -25000 1 0.893 200 178.6 2000 1786 5000 4465 8500 7590.5 2 0.797 600 478.2 200 159.4 5000 3985 8500 6774.5 3 0.712 800 569.6 100 71.2 5000 3560 8500 6052 4 0.636 1400 890.4 75 47.7 5000 3180 8500 5406 NPV 116.8 64.3 190 823

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