Mathematics · Financial Management
A project manager is considering two mutually exclusive investment proposals. Proposal X requires an initial outlay of 8,00,000 and is expected to generate net cash inflows of 2,50,000 per annum for 5 years. Proposal Y requires an initial outlay of 1,00,000 and is expected to generate 3,20,000 per annum for 5 years. The cost of capital is 12%. Which of the following is correct regarding the Net Present Value (NPV) of these projects? (Use the 5-year annuity factor at 12%: 3.6048).
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Proposal Y is better because its NPV is 1,12,500.
- 2Proposal X has a higher Profitability Index than Proposal Y.
- 3Proposal Y is better because its NPV is 1,53,536.✓
- 4Proposal X is better because its NPV is 1,01,200.
Correct answer
Proposal Y is better because its NPV is 1,53,536.
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