Bella Ltd wishes to invest in either project X or project Y, and has provided you with the following information. Project X Project Y Initial Investment Shs. 20,000 Shs. 30,000 Estimated Life 5 years 5 years Scrap Value Shs. 1,000 Shs. 2,000 The profits before depreciation and after taxation (cash flows) are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Project x Shs. Shs. Shs. Shs. Shs. 5,000 10,000 10,000 3,000 2,000 Project y 20,000 10,000 5,000 3,000 2,000 Require. Given that the companies accepted Required Rate of Return (RRR) for such project is 13% p.a. Evaluate the two proposals and advise management of Bella on the best investment alternative using; The Net Present Value (NPV) Technique and The Profitability Index (PI) Technique
Bella Ltd wishes to invest in either project X or project Y, and has provided you with the following information.
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Project X |
Project Y |
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Initial Investment |
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Shs. 20,000 |
Shs. 30,000 |
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Estimated Life |
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5 years |
5 years |
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Scrap Value |
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Shs. 1,000 |
Shs. 2,000 |
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The profits before |
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Year 1 |
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Year 2 |
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Year 3 |
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Year 4 |
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Year 5 |
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Project x |
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Shs. |
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Shs. |
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Shs. |
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Shs. |
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Shs. |
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5,000 |
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10,000 |
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10,000 |
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3,000 |
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2,000 |
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Project y |
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20,000 |
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10,000 |
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5,000 |
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3,000 |
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2,000 |
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Require. Given that the companies accepted Required
The
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