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XYZ Company is exploring two mutually exclusive opportunity
XYZ Company is exploring two mutually exclusive opportunity. There are two available opportunities for XYZ with the following information: a ABC Company has projected annual returns of Php7 Billion and outstanding liabilities of Php5 Billion b. DEF Company has projected annual returns of Php 12 Billion and outstanding liabilities of Php20 Billion c Both companies has terminal value of Php 100 Billion If you will assess the company for five years with the required rate of return of 10%, which company will you recommend purchasing and how much? Why?
Expert Solution
ANSWER
COMPANY DEF IS PREFERRED WITH NPV OF 87.58 BILLION
| ABC COMPANY | |||
| CASH FLOWS | PV FACTOR @10% | PV OF CASH FLOWS | |
| YEAR 0 | -5 | -5 | |
| YEAR 1 | 7.0 | 0.909 | 6.36 |
| YEAR 2 | 7.0 | 0.826 | 5.79 |
| YEAR 3 | 7.0 | 0.751 | 5.26 |
| YEAR 4 | 7.0 | 0.683 | 4.78 |
| YEAR 5 | 107.0 | 0.621 | 66.44 |
| ROR | 10% | NPV = | 83.63 |
| DEF COMPANY | |||
| CASH FLOWS | PV FACTOR @10% | PV OF CASH FLOWS | |
| YEAR 0 | -20 | -20 | |
| YEAR 1 | 12.0 | 0.909 | 10.91 |
| YEAR 2 | 12.0 | 0.826 | 9.92 |
| YEAR 3 | 12.0 | 0.751 | 9.02 |
| YEAR 4 | 12.0 | 0.683 | 8.20 |
| YEAR 5 | 112.0 | 0.621 | 69.54 |
| ROR | 10% | NPV = | 87.58 |
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