GHI Ltd. is considering two exclusive projects with initial investments of ?35,000 each and a...
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GHI Ltd. is considering two exclusive projects with initial investments of ?35,000 each and a life span of 3 years. The company’s required rate of return is 10%, and it has a tax rate of 45%. Both projects will be depreciated on a straight-line basis. The net cash flows before taxes and the PV factor (at 10%) are as follows:
Year | 1 | 2 | 3 |
Project 1 | 15,000 | 13,000 | 12,000 |
Project 2 | 10,000 | 16,000 | 15,000 |
PV factor | 0.909 | 0.826 | 0.751 |
You are required to:
- Compute the NPV for both projects.
- Suggest which project should be chosen.
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