12. (a) B Ltd is considering two proposals I and II with
the following details:
Items
Year
Proposal I
Proposal II
Investment
19,000
40,000
Cash Inflows
Year 1
28,000
16,000
Year 2 28,000
16,000
Year 3
9,000
24,000
You are required to suggest the most attractive
proposal based on the NPV method considering
that future incomes are discounted at 12%. Also,
find the IRR of the two proposals.
(8)
What is meant by capital budgeting decisions?
What are its main features? Why do NPV and
IRR techniques of evaluation of capital budgeting
lead to conflicting project ranking?
(7)
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