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Your first task as financial manager of the Reginald Corporation is to choose between two alternative projects for producing and marketing video cassettes. Project A requires an initial outlay of PKR 100mln and will generate annual cash flows of PKR 16mln during its 12-yr life. At that time, its salvage value will be PKR 48mln. Project B also requires an initial outlay of PKR 100mln, but will generate annual cash flows of PKR 17.5 mln during its 12-yr life. Its salvage value at the end of year 12 is estimated to be PKR 10mln. Your firm will use a 12% discount rate to value both projects. (a) Find NPV of both the projects. (b) Payback period of both the projects (c) Compute AROR of both the projects.

Your first task as financial manager of the Reginald Corporation is to choose between two alternative projects for producing and marketing video cassettes. Project A requires an initial outlay of PKR 100mln and will generate annual cash flows of PKR 16mln during its 12-yr life. At that time, its salvage value will be PKR 48mln. Project B also requires an initial outlay of PKR 100mln, but will generate annual cash flows of PKR 17.5 mln during its 12-yr life. Its salvage value at the end of year 12 is estimated to be PKR 10mln. Your firm will use a 12% discount rate to value both projects. (a) Find NPV of both the projects. (b) Payback period of both the projects (c) Compute AROR of both the projects.

Essentials Of Investments
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
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Q3b: Your first task as financial manager of the Reginald Corporation is to choose between two alternative projects for producing and marketing video cassettes. Project A requires an initial outlay of PKR 100mln and will generate annual cash flows of PKR 16mln during its 12-yr life. At that time, its salvage value will be PKR 48mln. Project B also requires an initial outlay of PKR 100mln, but will generate annual cash flows of PKR 17.5 mln during its 12-yr life. Its salvage value at the end of year 12 is estimated to be PKR 10mln. Your firm will use a 12% discount rate to value both projects.
(a) Find NPV of both the projects.
(b) Payback period of both the projects
(c) Compute AROR of both the projects.
(d) Find IRR of both the projects to the nearest tenth of a percent.
(e) Please explain which project should you choose and why?

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