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The directors of Yama Yama Investments Limited are considering two mutually exclusive projects

Accounting

The directors of Yama Yama Investments Limited are considering two mutually exclusive projects. Both projects are concerned with the purchase of land for building. See details below. Period Project A Project B Initial outlay 0 100 000 60 000 Cash inflows 60 000 36 000 N 30 000 16 000 3 40 000 28 000 Required: 1. What is capital budgeting? (2) 2. When looking at capital budgeting, do we take the accrual system into account. Give a reason for your answer. (1) 3. Calculate the net present value of each of the projects above and state which of two projects should the directors accept and why. Assume a cost of capital/ required rate of return to be 10% (12)

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