Pay back Period
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:5. A choice is to be made between two competing projects which require an equal investment
of ? 50,000 and are expected to generate net cash flows () as under:
Year I Year II Year III Year IV
Year V Year VI
25,000
15,000 10,000
Nil
12,000 6,000
PROJECT 1
PROJECT 2
10,000
12,000 18,000
25,000
8,000
4,000
0.909
0.826
0.751
0.683
0.621
0.564
Present value
factor @ 10%
The cost of capital of the company is 10%. Which project should be selected and why?
Evaluate the project proposals using the following methods pointing out their merits and
demerits:
a. Pay back Period
b. Net Present value method
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