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You are a financial analyst for Kappa Limited. The Finance Controller of Kappa Limited has...

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Finance

  1. You are a financial analyst for Kappa Limited. The Finance Controller of Kappa Limited has asked you to analyze the two proposed capital investments: Project A and Project B. Each project requires an initial investment of Rs. 120 crores. The cost of capital of Project A is 15% and of Project B is 16%. The projects expected net cash flows are as follows:

Year

Expected Net Cash Flows (Rs. Crores)

Project A

Project B

0

-120

-120

1

54

35

2

54

50

3

54

80

  1. Which project has higher risk? Explain
  2. Calculate each projects payback period. Interpret the values of payback period of the two projects.
  3. Calculate each projects net present value (NPV). Interpret the values of NPV of the two projects.
  4. Explain whether the internal rate of the two projects will be more or less than the cost of capital of the two projects
  5. Which project or projects should be accepted if they are independent? Explain.
  6. Which project should be accepted if they are mutually exclusive? Explain.

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