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VWX Ltd. is evaluating two projects with an initial investment of ?70,000 each and a...

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Accounting

VWX Ltd. is evaluating two projects with an initial investment of ?70,000 each and a life span of 5 years. The company’s required rate of return is 8%, and the tax rate is 20%. The projects will be depreciated using the straight-line method. The net cash flows (pre-tax) and the PV factor (at 8%) are provided below:

Year

1

2

3

4

5

Project 1

18,000

17,000

16,000

15,000

14,000

Project 2

20,000

19,000

18,000

17,000

16,000

PV factor

0.926

0.857

0.794

0.735

0.681

You are required to:

  1. Determine the NPV for each project.
  2. Recommend which project to choose.

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