YZA Ltd. has two projects, each requiring an initial investment of ?45,000 and a life...
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Accounting
YZA Ltd. has two projects, each requiring an initial investment of ?45,000 and a life of 4 years. The firm’s cost of capital is 7% and it pays tax at 33%. The projects will be depreciated on a straight-line basis. The net cash flows (pre-tax) expected and the PV factor (at 7%) are as follows:
Year | 1 | 2 | 3 | 4 |
Project 1 | 15,000 | 14,000 | 13,000 | 12,000 |
Project 2 | 13,000 | 15,000 | 14,000 | 13,000 |
PV factor | 0.935 | 0.873 | 0.816 | 0.763 |
You are required to:
- Calculate the NPV of both projects.
- Decide which project is more feasible.
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