John Claire, the CFO of Projection Investment Ltd, is considering two mutually exclusive projects. Year Cash Flow (X) $’000 Cash...

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Finance

John Claire, the CFO of Projection Investment Ltd, isconsidering two
mutually exclusive projects.
Year Cash Flow (X) $’000 Cash Flow (Y) $’000
0 -40,000 -40,000
1 19,000 4,000
2 15,200 12,600
3 12,400 14,900
4 6,000 28,000
In each case, show your calculation clearly.
a If he applies the payback criterion, which project will hechoose?
b If he applies the IRR criterion, which project will hechoose?
c If he applies the NPV criterion with a required return of 9%,which project will he choose?
d At which discount rate (correct to 1 decimal place of apercentage) would he be indifferent between these two projects?

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4.3 Ratings (529 Votes)

a PaybackPeriod CriterionX 247 yearsY 330 yearsPROJECT X in 000ParticularsInitial OutlayYear 1Year 2Year 3Year 4Undiscounted Net Cash Flow 40000190001520012400 6000Cumulative Net Cash Flow 21000 5800 6600 See Answer

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John Claire, the CFO of Projection Investment Ltd, isconsidering twomutually exclusive projects.YearCash Flow (X) $’000Cash Flow (Y) $’0000-40,000-40,000119,0004,000215,20012,600312,40014,90046,00028,000In each case, show your calculation clearly.a If he applies the payback criterion, which project will hechoose?b If he applies the IRR criterion, which project will hechoose?c If he applies the NPV criterion with a required return of 9%,which project will he choose?d At which discount rate (correct to 1 decimal place of apercentage) would he be indifferent between these two projects?

Year	Cash Flow (X) $’000	Cash Flow (Y) $’000
0	-40,000	-40,000
1	19,000	4,000
2	15,200	12,600
3	12,400	14,900
4	6,000	28,000