Bms fm case study series-7

M/s  Onward  Technology  has  short  listed  two  projects  A  and  B  for  final consideration. It wants to  take up only one project  of the two  and not  both.  The investment required for project A is Rs.190 Lakhs while that for project B is Rs.400

Lakhs. The other details related to Project A and B are given below:

PROJECT A

Year                   Depreciation          Profit Before Tax        Profit After Tax

I                                24                           78                             56

II                                20                           82                             60

III                              16                              100                              74

(10)

PROJECT B

Year                   Depreciation          Profit Before Tax        Profit After Tax

I                              78                              104                              82

II                              64                              118                              92

III                               54                          260                            186

The cost of capital of company is 14% and the present value of Re.1 at the end of first, second and third year @ 14% rate is 0.8772, 0.7695 and 0.6750 respectively. Using Net Present Value Method, which project would you recommend.

What will be your answer under Pay Back Period Method?