BAC1644 PRINCIPLES OF FINANCE 10 MAY 2013 Question 1 (15 Marks) You are currently the Chief Financial Officer (CFO) of a company that is involved in oil exploration projects in the Northern part of Sudan. The company wishes to expand its operations. Four possible capital investment projects have been identified. The projects are not divisible and may not be postponed until a future period. After the projects end it is unlikely that similar investment opportunities will occur. Expected net cash flows (including residual values) are as follows: Project A(RM'000) B(RM'000) C(RM'000) D(RM'000) - 174.000 -200,500 -164.000 -187,500 Year! 53,000 67,000 40,000 80,000 Year 2 53,000 67.000 87,000 92,000 Year 3 68,000 67,000 87,000 69,000 78,000 67.000 Outlay Year 4 The cost of capital is 15% per annum. Calculate: a) b) c) The expected net present value(NPV) of each project (9marks) The expected profitability index (PI)associated with each project (3 marks) Rank the projects according to both these appraisal methods (4 marks) Discuss the similarities and differences between NPV method and PI. Give examples. (9 marks) (Total: 15 Marks d) Question 2 (25 Marks)