BBF302/05 FINANCIAL MANAGEMENT AND ANALYSIS

Need full answer according to marks.

QUESTION 3 (25 MARKS) a) Coco Industries has four potential projects with an initial cost of RM2,000,000 each. The capital budget for the year will only allow Coco industries to accept one of the four projects. Given the discount rates and the future cash flows of each project, calculate the NPV and justified which project should they accept. Year Project A (RM) 1 2 3 4 5 Discount rate 500,000 500,000 500,000 500,000 500,000 5% Project B (RM) 600,000 600,000 600,000 600,000 600,000 9% Project C (RM) 1,000,000 800,000 600,000 400,000 200,000 15% Project D (RM) 300,000 500,000 700,000 900,000 1,100,000 22% (20 marks) b) Monica and Rachel are having a discussion about IRR and NPV as a decision model for Monica's new restaurant. Monica wants to use IRR because it gives a very simple and intuitive answer. Rachel states that there can be errors made with IRR that are not made with NPV. Elaborate a type of error can be made with IRR but not with NPV