Suppose you are BBA graduates from Tribhuvan University with finance specialization and have been appointed as financial manager of Gandaki…
BBA Financial Management · 2024 · Solved Question with Answer
Suppose you are BBA graduates from Tribhuvan University with finance specialization and have been appointed as financial manager of Gandaki Hydropower Company (GTC). As financial manager, you should make various financial decisions such as investment, financing, working capital and dividend decisions. At present, Chief Financial Officer of GTC has asked you to analyze two proposed projects: Project X and Project Y to make appropriate capital investment decision. The projected initial investment and expected net cash flows of projects are as follows:
| Year | Cash Flows of Project X (Rs) | Cash Flows of Project Y (Rs) |
| 0 | (500,000) | (500,000) |
| 1 | 200,000 | 300,000 |
| 2 | 200,000 | 200,000 |
| 3 | 200,000 | 200,000 |
| 4 | 200,000 | 100,000 |
Cost of capital of each project is 10 percent. You are asked to answer the following questions:
a. What is payback period? Calculate payback period of each project.
b. Calculate net present value of each project.
c. Which project/projects should be accepted if they are independent projects?
d. Which project should be chosen if they are mutually exclusive projects? Why?
e. Calculate internal rate of return of each project.