STU Ltd. has to choose between two mutually exclusive projects that require ?60,000 each and...
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Accounting
STU Ltd. has to choose between two mutually exclusive projects that require ?60,000 each and have a life span of 6 years. The required rate of return is 10%, and the tax rate is 40%. Both projects will be depreciated straight-line. The net cash flows (before taxes) and the PV factor (at 10%) are as follows:
Year
1
2
3
4
5
6
Project 1
20,000
18,000
16,000
14,000
12,000
10,000
Project 2
15,000
20,000
15,000
20,000
15,000
20,000
PV factor
0.909
0.826
0.751
0.683
0.621
0.564
You are required to:
Compute the NPV for both projects.
Advise which project is better.
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