One project of XYZ Ltd. Is doing poorly and being considered for replacement. Three mutually...
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One project of XYZ Ltd. Is doing poorly and being considered for replacement. Three mutually exclusive projects A, Band C have been proposed. Each project is expected to require Rs. 2 lakh as initial investment and have estimated life of 5 years, 4 years and 3 years, respectively and have no salvage value at the end. The company required rate of return is 10 per cent. The anticipated cash flow from the projects are as follows: Year A B C 1 50000 80000 100000 2 50000 80000 100000 3 50000 80000 10000 4 50000 30000 5 190000 a) Rank each project using NPV, IRR and Profitability Index. b) What would the profitability index be if the IRR equaled to required rate of return of the company? c) Recommend which project company should choose and why?
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