ABC Berhad research and development division had developed three new cereal flavours

for the local market $-$ durian cereal, mango cereal and jackfruit cereal. However, the

directors are of the view that the company should only invest in one new product. The

following is the cashflow projection prepared by the finance department for each of the

new flavours.

The company will finance the new product investment from its internally generated funds

and has an estimated cost of capital of $10$ per cent. The residual value at the end of

Year $5$ is negligible.

REQUIRED:

Evaluate the feasibility of each of the flavours based on the following methods:

$($a$)$ Net Present Value Method;

$(21$ marks$)$

$($b$)$ Internal Rate of Return Method

$($c$)$ The Payback Period Method;

Critically discuss the merits and risks of each of the flavours and recommend

the option that should be adopted.