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Steers is evaluating two competing investment projects. Both projects require an investment of R30 million. The company cost of capital is 12 percent...

Steers is evaluating two competing investment projects. Both projects require an investment of R30 million. The company cost of capital is 12 percent for projects of this type. The expected cash flows are as follows:


                                           Project 1 Project 2

End-of-year 1 R 3 million R 12 million

End-of-year 2 R 5 million R 9 million

End-of-year 3 R 8 million R 7 million

End-of-year 4 R 10 million R 4 million

End-of-year 5 R 13 million R 3 million

Total cash flows R 39 million R 35 million


Required:

5.1. Which of the two projects would you recommend? Why?


5.2. Will your choice be the same, whatever the cost of capital?

Top Answer

I would Recommend Project B , As in Project B . NPV is more... View the full answer

npv.png

[Figures in million] Year Present [email protected] 12% Project A
Cash outflow 0 1
Cash Inflow 1 0.893
2 0.797
3 0.712
4 0.635
5 0.557 Total Discou nted Cash Inflow Net Present Value Calculation of present...

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