(CAPITAL BUDGETING)

QUESTION 1

Ali Corporation is planning to make an investment of RM360.000 in one of the three (3)

alternatives shopping centers in Selangor. Each projects expected cash flows from the

investment are as follows (in RM):

Year Supermarket A Supermarket B Supermarket C

1 144,000 120,000 96,000

2 144,000 120,000 108,000

3 96,000 120,000 138,000

4 96,000 120,000 168,000

The company cost of capital is 12% and these projects are mutually exclusive.

a) Calculate the following:

1. Payback period for the three (3) projects. (6 marks)
2. Net Present Value for the three (3) projects. (9 marks)
3. Which projects should be selected and state your reasons. (2 marks)

b) List two (2) disadvantages of using payback period as capital budgeting method.

(3 marks)