A company is considering three mutually exclusive projects for its expansion nvestment in the project is OMR 400000. The finance director thinks that the nigher NPV should be chosen, whereas the managing director believes that the be undertaken, especially as projects have the same initial outlay and length of I anticipates a cost of capital of 10.5%, and the net after-tax cash flows of th Follows:
A company is considering three mutually exclusive projects for its expansion nvestment in the project is OMR 400000. The finance director thinks that the nigher NPV should be chosen, whereas the managing director believes that the be undertaken, especially as projects have the same initial outlay and length of I anticipates a cost of capital of 10.5%, and the net after-tax cash flows of th Follows:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Excel Assessment
A company is considering three mutually exclusive projects for its expansion plans. The initial
investment in the project is OMR 400000. The finance director thinks that the project with the
higher NPV should be chosen, whereas the managing director believes that the higher IRR should
be undertaken, especially as projects have the same initial outlay and length of life. The company
anticipates a cost of capital of 10.5%, and the net after-tax cash flows of the projects are as
follows:
Year
Cash Flow A
Cash Flow B
Cash Flow C
1
70000
436000
90000
160000
20000
149000
180000
20000
51200
4
150000
8000
100000
5
40000
6000
49400
(All amounts are in OMR)
Required:
(b) Which project will you advise to undertake to the company? Explain your answer
(c) What deficiencies in IRR can be overcome by using MIRR?
2.
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