Question
As an Investment Manager, you are required to do some analysis on two mutually exclusive products in the table below. The initial investment for both
As an Investment Manager, you are required to do some analysis on two mutually exclusive products in the table below. The initial investment for both projects is RM250,000. Below are the financial data involved in the projects:
Year Type 1 Type 2 Cash flows (RM) 1 (50,000) 55,000 2 75,000 55,000 3 70,000 55,000 4 75,000 55,000 5 98,000 55,000 6 105,000 55,000
i) Based on the above information, determine the number of years required for both projects to recover its initial costs.
(3 marks) ii) Assuming the cost of capital for the project is 9 percent, calculate the Net Present Value (NPV) and Profitability Index for each project.
(7 marks)
iii) Justify which project should be selected.
(2 marks)
b) Briefly explain the relationship between NPV and IRR.
(3 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started