Question
Lionel Berhad, a maker of casual clothing, is considering four projects. Because of past financial difficulties, the company has a high cost of capital at
Lionel Berhad, a maker of casual clothing, is considering four projects. Because of past financial difficulties, the company has a high cost of capital at 20%. Which of these projects would be acceptable under those cost circumstances?
|
| Project A | Project B | Project C |
| Initial investment | RM100,000 | RM 100,000 | RM180,000 |
| Year (t) |
| ||
| 1 | RM30,000 | RM50,000 | RM80,000 |
| 2 | RM50,000 | RM40,000 | RM80,000 |
| 3 | RM20,000 | RM30,000 | RM80,000 |
- Evaluate the feasibility of the projects by using (i) payback period, (ii) net present value (NPV), and (iii) internal rate of return (IRR). Support your answer with calculations.
(18 marks)
- Rank the projects by each of the techniques used. Make and justify a recommendation.
(7 marks)
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