A firm intends to invest in either project A or B. The expected cash flows are given below:
Year Project A Project B
0 (2000) (2000)
1 1000 200
2 800 600
3 600 800
4 200 1,200
The required cost of capital is 10%. Calculate:
- The Payback period for each project
- Net Present Value (NPV) for each project
Using the answers above, advise the firm on the project that they should invest in
This question was adopted from past KNEC exam. KNEC past papers provide learners with the best revision tools to prepare for exam using revision questions and answers.
Answer:
1) Payback Period
2) Net Present Value (NPV)
