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Pharmaniaga Berhad is in the process of selecting a better investment from two equally risky projects. Project A and B requires initial capital of RM100,000
- Pharmaniaga Berhad is in the process of selecting a better investment from two equally risky projects. Project A and B requires initial capital of RM100,000 and RM150,000 respectively. The cash inflows of each projects are shown below:
Year | Project A (RM) | Project B (RM) |
1 | 35,000 | 45,000 |
2 | 40,000 | 45,000 |
3 | 50,000 | 45,000 |
4 | 60,000 | 45,000 |
Based on the above information, you are required to:
- Compute the payback period for both projects.
- Calculate the net present value (NPV) of each project at 12% annual rate of return.
- Calculate profitability index for both projects.
- Based on the answer above, which project should be selected based on mutually exclusive projects? Why?
- When Company Makmur wants to invest in two or more projects, this company need to consider whether they are mutually exclusive or independent projects. Define mutually exclusive and independent projects and discuss the criteria of choosing a project based on that consideration?
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