Reference no: EM132761126

Question - You are presented with the following projections for investment projects 'X' and 'Y'.

The required rate of return is 12% and there is no salvage or residual value for both investments. Ignore taxation.

	Project X	Project Y
Initial investment outflow	170,000	245,000
Subsequent cash inflows
Year 1	45,000	70,000
Year 2	45,000	80,000
Year 3	45,000	90,000
Year 4	45,000	60,000
Year 5	45,000	40,000

Required -

(i) Calculate the payback period for both projects.

(ii) Calculate the net present value for both projects.

(iii) Calculate the internal rate of return for project 'X'.

(iv) Advise on which project should be selected for investment. Justify your recommendation.