Adamson Capital Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of investment, and cash flows for each proposal are as follows: Proposal Investment Cash flow Probability 0.1 RM150,000 0.4 RM150,000 Proposal A RM540,000 0.4 RM150,000 0.2 RM90,000 0.1 RM90,000 0.1 RM100,000 0.4 RM90,000 Proposal B RM250,000 0.4 RM80,000 0.2 RM65,000 0.1 RM65,000 0.1 RM220,000 0.4 RM210,000 Proposal C RM640,000 0.4 RM210,000 0.2 RM190,000 0.1 RM160,000 0.1 RM130,000 Proposal D RM310,000 0.4 RM100,000 0.4 RM60,000 0.2 RM60,000 0.1 RM60,000 | The policy of the company requires a maximum payback period of three years. Besides, a minimum average rate of return of 12% is required on all projects. 1. Calculate the payback period for each four proposals. Round to nearest month 2. For further analysis, Calculate the Net Present Value (NPV) using a rate of 12% 3. Calculate the Profitability Index for each proposal (4 marks) (8 marks) (4 marks) 4. Based upon the analysis, rank the proposals from most attractive to least attractive Table. Then, discuss the relative attractiveness of the proposal. (as in (5 marks) Proposal Payback period Profitability Index Net Present Value Accept or Reject 5. To determine the project risk, calculate the expected cash flow, standard deviation and coefficient variation. (6 marks) 6. Based on the result in question (5). The company has decided to further analyse using risk-adjusted discount technique. A minimum rate of return of 13% for the less risky project and 16% for the higher risk project (tips: choose only one less risky project and one high riskier project). (6 marks) 7. Lastly, explain which project should the company undertake based on risk explanations? Adamson Capital Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of investment, and cash flows for each proposal are as follows: Proposal Investment Cash flow Probability 0.1 RM150,000 0.4 RM150,000 Proposal A RM540,000 0.4 RM150,000 0.2 RM90,000 0.1 RM90,000 0.1 RM100,000 0.4 RM90,000 Proposal B RM250,000 0.4 RM80,000 0.2 RM65,000 0.1 RM65,000 0.1 RM220,000 0.4 RM210,000 Proposal C RM640,000 0.4 RM210,000 0.2 RM190,000 0.1 RM160,000 0.1 RM130,000 Proposal D RM310,000 0.4 RM100,000 0.4 RM60,000 0.2 RM60,000 0.1 RM60,000 | The policy of the company requires a maximum payback period of three years. Besides, a minimum average rate of return of 12% is required on all projects. 1. Calculate the payback period for each four proposals. Round to nearest month 2. For further analysis, Calculate the Net Present Value (NPV) using a rate of 12% 3. Calculate the Profitability Index for each proposal (4 marks) (8 marks) (4 marks) 4. Based upon the analysis, rank the proposals from most attractive to least attractive Table. Then, discuss the relative attractiveness of the proposal. (as in (5 marks) Proposal Payback period Profitability Index Net Present Value Accept or Reject 5. To determine the project risk, calculate the expected cash flow, standard deviation and coefficient variation. (6 marks) 6. Based on the result in question (5). The company has decided to further analyse using risk-adjusted discount technique. A minimum rate of return of 13% for the less risky project and 16% for the higher risk project (tips: choose only one less risky project and one high riskier project). (6 marks) 7. Lastly, explain which project should the company undertake based on risk explanations
