QUESTION 3

Swift Corp. is considering investing in the following independent projects provided the projects offer good returns to the corporation. Table below details the initial outlays, the cost of capital, the desired payback period, the projects cash flows, and the internal rate of returns for each project.

	Project WIRA	Project WAJA	Project WALA
Initial Capital	RM3,500,000	RM500,000	RM500,000
Cost of Capital	20.00%	10.00%	25.00%
Desired Payback Period	3.00 years	6.00 years	2.00 years
Internal Rate of Returns	43.70%	9.61%	52.33%
Cash Flow Year 1	RM1,500,000	RM80,000	RM250,000
Cash Flow Year 2	RM2,000,000	RM80,000	RM350,000
Cash Flow Year 3	RM2,500,000	RM80,000	RM375,000
Cash Flow Year 4	RM2,750,000	RM80,000	RM425,000
Cash Flow Year 5	-	RM80,000	-
Cash Flow Year 6	-	RM80,000	-
Cash Flow Year 7	-	RM80,000	-
Cash Flow Year 8	-	RM80,000	-
Cash Flow Year 9	-	RM80,000	-
Cash Flow Year 10	-	RM80,000	-

a) Given the above information, analyze the three (3) projects using the commonly used capital budgeting techniques; i) Payback Period, ii) Net Present value, and iii) Internal Rate of Return.

(15 marks)

b) Based on your analysis, rank the projects from the most preferable to the least preferable. Determine the project(s) that is profitable and acceptable for Swift Corp. Justification your answer.

(5 marks)