(CAPITAL BUDGETING)

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QUESTION 4

Million Sdn Bhd is in the process of expansion its business operation. Provided below is the

after tax cash flows for both projects.

Year Project A (RM) Project B (RM)

0 50 000 47 000

1 15 000 20 000

2 15 000 (10 000)

3 15 000 15 000

4 15 000 14 000

5 15 000 20 000

The cost of capital is 10% and the projects are mutually exclusive.

1. Calculate the followings:

1. Payback period for the projects. (4 marks)

2. Net present value for the two projects. (6 marks)

3. Internal rate of return for project A. (4 marks)

4. Which project should be selected and state your reason. (2 marks)

2. Differentiate between independent project and mutually exclusive project. (4 marks)