2.(a) Cempaka Sdn. Bhd. is considering a project which requires RM400,000 for the start up. The cash flows expected from the project are as follows:

Year. Cash Flow (RM) 1 200,000 2 260,000 3 295,000

The cost of capital for this project is 8%. i. Calculate the payback period for this project. ii. Calculate the net present value and determine whether the project should be accepted or rejected.

(b) Explain the advantages and disadvantages of using the net present value technique in evaluating a project.