Reference no: EM132616380

Paul was recently appointed to the post of investment manager of masada limited,a quoted company. The company has raised sh. 8000000 through aright issue.

Paul has a tax of evaluating two mutually exclusive projects with unequal economic lives. Project x has 7 years y has 4 years of economic life. Both projects are expected to have zero salvage value.their expected cash flows are as follows:

Project                           x                                y

Year                     cash flows               cash flows

1                           2000000              4000000

2                           2200000             3000000

3                           2080000             4800000

4                           2240000             800000

5                            2760000                -

6                             3200000              -

7                                3600000          -

The cost of equity of the firm is 20%

Required:

Problem a) the net present value of each project

Problem b) the internal rate of return of the projects (rediscount cash flows at 24% for project x and 25% for project y)

Problem C) briefly comment on your results in (a) and (b)