VWX Ltd. is evaluating two projects with an initial investment of ?70,000 each and a...
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VWX Ltd. is evaluating two projects with an initial investment of ?70,000 each and a life span of 5 years. The company’s required rate of return is 8%, and the tax rate is 20%. The projects will be depreciated using the straight-line method. The net cash flows (pre-tax) and the PV factor (at 8%) are provided below:
Year | 1 | 2 | 3 | 4 | 5 |
Project 1 | 18,000 | 17,000 | 16,000 | 15,000 | 14,000 |
Project 2 | 20,000 | 19,000 | 18,000 | 17,000 | 16,000 |
PV factor | 0.926 | 0.857 | 0.794 | 0.735 | 0.681 |
You are required to:
- Determine the NPV for each project.
- Recommend which project to choose.
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