Aalia Ltd. has two alternative projects under consideration. Project-A requires a capital outlay of ₹1,60,000 and Project-B needs ₹1,80,000. Both are estimated to provide a cash flow for five years; Project-A: ₹45,000 pe
CS Professional · Financial, Treasury and Forex Management · PYQS · June 2016
Aalia Ltd. has two alternative projects under consideration. Project-A requires a capital outlay of ₹1,60,000 and Project-B needs ₹1,80,000. Both are estimated to provide a cash flow for five years; Project-A: ₹45,000 per year and Project-B: ₹58,000 per year. The cost of capital is 10%. Show which project is preferable from the view point of net present value.
Answer & Explanation:
Calculation of NPV Years CFAT in ₹ PV Annuity factor@ 10% Total PV in ₹ A B A B 1-5 45,000 58,000 3.7908 1,70,586 2,19,866 Less: cash outlay (1,60,000) (1,80,000) NPV 10,586 39,866 As per NPV criterion, Project B will be selected.
Topics: Capital Budgeting
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