Case Study – 1

L&T is currently analyzing capital expenditure proposals for the

new investment projects; the company uses the net present value
technique to evaluate projects. The capital budget is limited to
500,000. The cost of capital of is 12%. Being a project
manager of L&T, you are requested the select the best project
based on Net present Value criteria (NPV) and suggest the same
to Vice President (Projects). The initial investment and
projected net cash flows for each project are shown below.

Project A Project B Project C Project D

(`) (`) (`) (`)
Initial Investment 200,000 190,000 250,000 210,000
Project Cash Inflows:
Year 1 50,000 40,000 75,000 75,000
2 50,000 50,000 75,000 75,000
3 50,000 70,000 60,000 60,000
4 50,000 75,000 80,000 40,000
5 50,000 75,000 100,000 20,000