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A company is considering two different projects. The choice between the two will be based...

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Accounting

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A company is considering two different projects. The choice between the two will be based on the best financial return over a 5 year period. It has assessed each project and has determined that Project 1 should be evaluated using an annual required increase in money value of 12% per year, whereas Project 2 should be evaluated using an annual required increase in money value of 8% per year. Both projects will take one year to implement. After this period, they will start generating income. After the costs analysis, the following is the information available (all in present day money values): Project 1: Project 2: Project costs 200K 220K Income created: Year 1 after completion 43K 34K Year 2 50K 62K Year 3 58K 69K Year 4 87K 92K Year 5 119K 110K (0) Calculate the net present value for each project and identify which offers the greatest return over the 5 year period. [45%] (ii) The company allocated different increase in money values to each project. Comment on the possible reasons for this. (20%) (iv) If, after the 5 year period, Project 1 was expected to continue to grow the income return, whereas Project 2 remained at a constant level of income achieved in year 5, what recommendations would you have for the company? or

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