JKL Ltd. has two potential projects, each requiring an initial outlay of ?50,000 and a...
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JKL Ltd. has two potential projects, each requiring an initial outlay of ?50,000 and a life of 4 years. The required rate of return is 11%, and the tax rate is 25%. The projects will be depreciated using the straight-line method. The net cash flows (before taxes) expected are given below along with the PV factor (at 11%):
Year | 1 | 2 | 3 | 4 |
Project 1 | 20,000 | 18,000 | 16,000 | 14,000 |
Project 2 | 15,000 | 17,000 | 19,000 | 20,000 |
PV factor | 0.901 | 0.812 | 0.731 | 0.659 |
You are required to:
- Calculate the NPV of both projects.
- Recommend which project to proceed with.
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