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Corporate Finance · End Term · 22 Dec 2024 · September 2024 term · Set QDB1

Question 15: Sloka Inc. is considering two different projects, A and …

Question 15

+3 marksOne correct option

Sloka Inc. is considering two different projects, A and B, for investment and can choose at most one project to invest in. Project A costs Rs 10,000 and is expected to generate Rs 5,000 in year one and Rs 7,000 in year two. Project B costs Rs 12,000 and is expected to generate Rs 8,000 in year one, Rs 4,000 in year two, Rs 2,000 in year three, and Rs 1,000 in year four. Sloka Inc.’s required rate of return for these projects is 5%. Which of the following is true?

  1. A

    Sloka Inc. should prefer Project B as it has a higher net present value than Project A.

  2. B

    Sloka Inc. should prefer Project A as it has a higher net present value than Project B.

  3. C

    Sloka Inc. is indifferent between Project A and Project B as both have the same net present value.

  4. D

    Sloka Inc. should not invest in either projects A or B as both have negative net present value.

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Correct answer

  • A

    Sloka Inc. should prefer Project B as it has a higher net present value than Project A.

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Question 15 of 35 in the IIT Madras BS Corporate Finance (Corporate Finance) End Term paper sat on 22 Dec 2024, in the September 2024 term (IIT M DEGREE AN EXAM QDB3 22 Dec 2024). It carries 3 marks.

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