Reference no: EM133085870

Question - TIGER Ltd began operations in 2001 and has been extremely successful since its start. Mr. Litin, the financial manager, is contemplating expanding the firm into other areas of Srilanka and would want to share with you information about two projects that the company wishes to pursue.

Project A - Investment value RS 380,000, Cash flows are Year 1: RS 100,000, Year 2: RS 50,000, Year 3: RS 90,000, Year 4: RS 80,000, Year 5: RS 70,000 and Year 6: RS 60,000.

Project B - Investment value RS 1,060,000, Cash flows are Year 1: RS 900,000, Year 2: RS 90,000, Year 3:RS 90,000, Year 4: RS 80,000, Year 5: RS 50,000 and Year 6: RS 30,000.

Discount factor at 10%.

Year 1: 0.909, Year 2: 0.826, Year 3: 0.751, Year 4: 0.683, Year 5: 0.621 and Year 6: 0.564

Additional Information

Taxation is 15%.

Assume the cost of capital of the company for both projects is 10%.

Ignore taxation.

Required -

a) Calculate the payback period for both projects.

b) Calculate the net present value for both projects.

c) Calculate profitability index for both projects.

d) Make a recommendation for the TIGER firm based on the results of your calculations in (a), (b), and (c).