Solution-Calculate the net present value for each project

Calculate the net present value for each project

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Question - You are an employee of a company called Choices (Pty) Ltd and since the financial manager knows that you have just passed the financial management module for your qualification, he approached you to help him with the financing decision regarding two projects.

He shared the following information for the two projects with you:

Cash inflows:	Project A	Project B
Year 1	600,000	500,000
Year 2	650,000	520,000
Year 3	680,000	560,000
Year 4	700,000	590,000
Year 5	710,000	640,000
Total cash inflows	3,340,000	2,810,000

The initial cost for both projects is R1,000,000.

The internal rate of return (IRR) is 25% for project A and 7% for project B.

The financial manager is of the opinion that the company should invest in project A, as this project generates more cash inflows for the same initial cost.

Required - Calculate the net present value for each project. Advise the financial manager whether project A is the better project based on your calculations.

Reference no: EM133067898

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Calculate the net present value for each project

Reference no: EM133067898

Reference no: EM133067898

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