Simon Ltd. is considering two mutually exclusive projects. Investment outlay of both the projects is ₹5 lakh and each is expected to have a life of 5 years. Under three possible situations their annual cash flows and pro
CS Professional · Financial, Treasury and Forex Management · PYQS · June 2014
Simon Ltd. is considering two mutually exclusive projects. Investment outlay of both the projects is ₹5 lakh and each is expected to have a life of 5 years. Under three possible situations their annual cash flows and probabilities are as under : Situation Probabilities Project-A cash flow (₹) Project-B cash flow (₹) Good 0.30 6 lakh 5 lakh Normal 0.40 4 lakh 4 lakh Worse 0.30 2 lakh 3 lakh If the cost of capital is 7%, which project should be accepted? Consider the risk parameter also in decision making. Explain with workings.
Topics: Capital Budgeting
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