(CAPITAL BUDGETING)

QUESTION 2

Sue Rie Berhad is considering two mutually exclusive projects, SS and MM whose involve in an investment cost of RM400,000. The cost of capital is 12% and expected cash flow for each project is given below:

Year Project SS (RM) Project MM (RM)

1 150,000 180,000

2 150,000 180,000

3 150,000 140,000

4 150,000 120,000

a) Calculate the followings:

i) Payback period for both projects. (4 marks)

ii) Net Present Value for the two projects. (6 marks)

iii) Internal rate of Return for Project SS only. (4 marks)

iv) Which project should be accepted? Why? (3 marks)

b) Define the word "initial outlay". (3 marks)