1.1. Owners of companies are considering the implementation of two mutually exclusive investment projects. Both projects are in some way connected with the acquisition of new equipment. As both projects have the following information:
Project 1 Project 2
Non-recurring costs for the purchase of equipment, mln. Rub. 100 000 60 000
Estimated net income (loss):
First year 29 000 18 000
The second year (1000) * (2000) *
Third year 2000 4000
Forecast / estimate the residual value of the equipment 7000 6000
* In brackets indicate negative values \u200b\u200b(loss)
The projected cost of capital: 10%. When calculating net profit, the company used the straight-line method of depreciation for 3 years. Depreciation should be considered in the cash flow. None of the proposed projects does not increase the need for enterprises to increase working capital.
1. Calculate the NPV and payback period and IRR (approximately) for both projects.
2. Justify the decision as to which project and why it should be passed owners of the company.