Question
IoI Capital is considering two investment projects, Battery Producer and Cake Producer. Project Battery Producer will cost RM400,000 whilst project Cake Producer costs RM12,000. The
IoI Capital is considering two investment projects, Battery Producer and Cake Producer. Project Battery Producer will cost RM400,000 whilst project Cake Producer costs RM12,000. The following cash-flows are predicted for each project:
| Year | Battery Producer | Cake Producer |
| 0 | 400000 | 12000 |
| 1 | 55000 | 30000 |
| 2 | 70000 | 25000 |
| 3 | 60000 | 30000 |
| 4 | 110000 | 40000 |
| 5 | 75000 | 62000 |
Required:
a) Calculate the Net Present Value (NPV) of the two projects using a discount rate of 9%. Based on the NPV criteria identify which projects you would accept and explain why.
b) Calculate the Internal Rate of Return (IRR) of each project. Using a hurdle rate equal to 8.2%, identify which projects you would accept and explain why.
c) Calculate the payback period for each project. If the company only accepts projects that pay back within 4 years, identify which projects you would accept and explain why.
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Financial and Managerial Accounting
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
12th edition
978-1133952428, 1285078578, 1133952429, 978-1285078571
