Answered step by step
Verified Expert Solution
Question
1 Approved Answer
QUESTION 1 A business owner has a choice of 2 investment projects. The estimated costs and returns are as follows: Project A (RM) Project B
QUESTION 1 A business owner has a choice of 2 investment projects. The estimated costs and returns are as follows: Project A (RM) Project B (RM) Cost 250,000 250,000 Year 1 cash flow (30,000) 30,000 Year 2 cash flow 100,000 70,000 Year 3 cash flow 100,000 85,000 Year 4 cash flow 80,000 80,000 Year 5 cash flow 40,000 25,000 (a) (b) Calculate the payback period for both projects. Give your answer in years and months. (8 marks) Based on the payback method of investment, advice the business owner which project is the better investment. Give a reason. (4 marks) Calculate the Net Present Value (NPV) for both projects using the discount factors of 3% and 6.5% as given in the following table. (8 marks) (c) Year 3% discount factor 6.5% discount factor 2/5 0 1.000 1.000 1 0.971 0.939 N 0.943 0.882 3 0.915 0.828 4 0.888 0.777 5 0.863 0.730 (d) Using your answer to part (c), calculate the Internal Rate of Return (IRR) for both projects A and B. (5 marks) (Total: 25 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started