Question

TUTO SECTION 2 1. From the following information, calculate the net present value of the two pro two projects should be accepted. resent value of the two project andsuggest which of the Particulars Investment Project Y 30,000 dhs Estimated Life Project X 20,000 dhs 5 years 1,000 dhs 5 years Scrap Value 2,000 dhs The cash inflows are as follows: Project Year 1 Name Year 2 Year 3 Year 4 Year 5 Project 5,000 10,000 10,000 3,000 2,000 Project 20,000 10,000 5,000 3,000 2,000 Note: The following are the present value factors @ 10% p.a. Year 1 Facto 0.683 0.6 0.826 0.751 0.909

Answer 1

Depreciation is a non cash expenditure and they have not given tax rate in the question since depreciation tax shield cannot be calculated in the absence of tax rate info so depreciation is ignored in the calculation. As per SLM Depreciation per year= (intial investment-scrap value)/useful life. For project x depreciation per year = (20000-1000)/5 =3800 per year.for project y depreciation per year= (30000-2000)/5=5600.

ME СЕ о 00 M for so sweet calculation of NPV PIN project x. indhs) cr pur@ 10% DCE 5000 4SHS 10000 0.426 8260 10000 OTSI 1510 3000 0.643 2049 2.000 0.621 12.42 * 1000 0.621 24227 less lotal inestiment (2000) NPV 4227 ans For Project y (inchis) cro I wr yr cr Pvf @ 10% OCE 2000 0.909 18180 0.826 8200 0.751 3155 3000 0.683 2000 1242 5 # 2000 12112 34728 YesS Intial Investment Booro) NPV 4728 dhs Decission - Project 4 showd be selecred since its wpu is higher by soldhs (4728 - 4227) "A" figures with this mark represents scrap value. which is celso inflow of it is considered in calculation