XYZ Ltd. is evaluating two exclusive projects that require an initial investment of ?30,000 each...
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Accounting
XYZ Ltd. is evaluating two exclusive projects that require an initial investment of ?30,000 each and have a life of 5 years. The company’s cost of capital is 15% and it pays tax at 30%. Depreciation is on a straight-line basis. The projects' net cash flows before taxes and the PV factors (at 15%) are given below:
Year
1
2
3
4
5
Project 1
12,000
12,000
10,000
8,000
6,000
Project 2
9,000
11,000
11,000
10,000
9,000
PV factor
0.870
0.756
0.658
0.572
0.497
You are required to:
Calculate the NPV for both projects.
Decide which project should be accepted.
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