A company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs 10,000 each, and have a life of five years. The company’s required rate of return is 10 per cent and pays tax at a 50 per cent rate. The projects will be depreciated on a straight –line basis. The before taxes cash flows expected to be generated by the projects are as follows: Project Before –tax Cash Flow (Rs) 1 2 3 4 5 A 4,000 4,000 4,000 4,000 4,000 B 6,000 3,000 2,000 5,000 5,000 Calculate for each project: 1. The payback 2. The average rate of return 3. The net present value and profitability index
A company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs
10,000 each, and have a life of five years. The company’s required
pays tax at a 50 per cent rate. The projects will be
taxes cash flows expected to be generated by the projects are as follows:
Project
Before –tax Cash Flow (Rs)
1 2 3 4 5
A 4,000 4,000 4,000 4,000 4,000
B 6,000 3,000 2,000 5,000 5,000
Calculate for each project:
1. The payback
2. The average rate of return
3. The
4. The
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