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Academic MBA Question:

Question: You are a project manager with Striker Projects Pvt. Ltd. As the project manager, you need to evaluate two projects “Salient” and “Stylish” , and make a recommendation to management for the selection of a suitable project. Both the projects “Salient” and “Stylish” entail an initial investment of Rs. 5,00,000. Projected cash inflows for the Project “Salient” are Rs. 1,50,000 in year 1; Rs. 1,60,000 in year 2; Rs. 1,70,000 in year 3, and Rs. 1,65,000 in year 4. Projected cash inflows for the Project “Stylish” are Rs. 1,40,000 in year 1; Rs. 1,40,000 in year 2; Rs. 1,40,000 in year 3, Rs. 1,25,000 in year 4; and Rs. 1,22,000 in year 5. The required rate of return is 10%. The present value of Rs. 1 at 10% is Rs. 0.909 for year 1, Rs. 0.826 for year 2, Rs. 0.751 for year 3, Rs. 0.683 for year 4, and Rs. 0.621 for year 5. Calculate Net Present Value (NPV), Internal Rate of Return (IRR) and Profitability Index (PI) for both the projects “Salient” and “Stylish” . Compare and contrast NPV, IRR and PI values of projects “Salient” and “Stylish” , and recommend a suitable project for investment to the management.


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