Tata Steel is considering two mutually exclusive investment projects.
| Particulars | Project A | Project B |
|---|---|---|
| Initial Investment | ᐹ6,00,000 | ᐹ6,00,000 |
| Annual Cash Inflow | ᐹ1,80,000 | ᐹ2,10,000 |
| Project Life | 5 years | 4 years |
| Cost of Capital | 10% | 10% |
Questions
- Compute the Payback Period for both projects.
- Calculate the NPV of both projects.
- Which project should be selected under capital budgeting analysis?
- Explain the significance of cost of capital in investment decisions.