Economics · Capital Budgeting
A company is considering two mutually exclusive projects. Project A requires an initial investment of ₹5,00,000 and is expected to generate annual cash inflows of ₹1,50,000 for 5 years. Project B requires an initial investment of ₹4,00,000 and is expected to generate annual cash inflows of ₹1,20,000 for 5 years. If the required rate of return is 10% and the present value factor of an annuity of ₹1 at 10% for 5 years is 3.79, which project should be accepted based on Net Present Value (NPV)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Project B, because it has a higher NPV✓
- 2Project A, because it has a higher NPV
- 3Project B, because it requires a lower investment
- 4Project A, because it has a higher total cash inflow
Correct answer
Project B, because it has a higher NPV
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