Company RH is considering two investments with 1-year lives. The more expensive of the two is the better and will produce more savings

Company RH is considering two investments with 1-year lives. The more expensive of the two is the better and will produce more savings….

answer:

Cash Flow Present Value
DF at 10% Project A Project B Project A Project B
Initial Outlay 1 -195000 -1200000 -195000 -1200000
Inflow Year 1       0.9091 240000 1650000 218181.8 1500000
NPV 23181.82 300000
PI (218182/195000) (1500000/1200000)           1.12 1.25
IRR 23.08% 37.50%
irr(Values 0: 1) irr(Values 0: 1)
In case of capital rationing constraints project with highest NPV i.e. Project B is selected
Otherwise we can also consider Project A
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