A firm whose cost of capital is 10% is considering two mutually exclusive projects A and B, the cash flows of which are as below: 12 Year Project A Project B 50,000 62,500 Suggest which project should be taken up using (i) net present value method and (ii) the internal rate of return method. 80,000 96,170 1

A firm whose cost of capital is 10% is considering two mutually exclusive projects A and B, the cash flows of which are as below: 12 Year Project A Project B 50,000 62,500 Suggest which project should be taken up using (i) net present value method and (ii) the internal rate of return method. 80,000 96,170 1

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A firm whose cost of capital is 10% is considering two mutually
exclusive projects A and B, the cash flows of which are as below:
Year
Project A
Project B
7
0
50.000
80.000
1
62,500
96.170
Suggest which project should be taken up using (i) net present

A firm whose cost of capital is 10% is considering two mutually
exclusive projects A and B, the cash flows of which are as below: 12.
Year
Project A Project B
50,000
62,500
Suggest which project should be taken up using (i) net present value
method and (ii) the internal rate of return method.
80,000
96,170
1

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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