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454 Corporate Finance BRILLIANT’S

5.1.8 A company is considering as to which of two mutually exclusive projects it should
undertake. The company anticipates cost of capital of 10% and the net after tax cash flows
of the projects are as follows : ` ('000)

Year 0 1 2 3 4 5

Project X (200) 35 80 90 75 20
Project Y (200) 213 10 10 4 3

Required :
(a) Calculate NPV and IRR of each project.
(b) State which project you would recommend ?
[Ans. NPV Project X : ` 29.15, Project Y : ` 18.76. IRR Project X : 15.74%, Project Y : 16.62%,
NPV and IRR are giving contradictory results. In this case, the results of NPV should be
given preference over IRR. Hence Project X is preferable.]
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