QUESTION 4 Grand Sdn Bhd is looking at two project opportunities for a piece of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of RM 1,500,000 with cash flows over the next six years of RM200,000 (Year 1), RM250,000 (Year 2), RM300,000 (Years 3 through 5), and RM 1,750,000 in year 6, when Grand plans to sell the restaurant. The sports facility has the following cash flows: initial cost of RM2,400,000 with the cash flows over the next four years of RM400,000 (year one through three) and RM3,000,000 in year four, when Grand plans to sell the facility. Grand is also switching from the payback period to the discounted payback for a few other small projects. The cut off period will remain at three years. Below are the cash flows of the four small projects: Cash flow Project (RM) Project 2 (RM) Project 3 (RM) Project 4 (RM) Initial cost 10,000 15,000 8,000 18,000 Year! 4,000 7,000 3,000 10,000 Year 2 4,000 5,500 3,500 11,000 Year 3 4,000 4,000 4,000 0 Required: a) If the appropriate discount rate for the restaurant is 11% and the appropriate discount rate for the sports facility is 13%, using annualised net present value, determine the project Grand should choose for the piece of land. (10 marks) b) Using a 10% discount rate, determine which of the small projects that would have been accepted under payback period will now be rejected under the discounted payback period. (10 marks) c) You have been hired by Grand Sdn Bhd as money manager of its RM4 million investment fund. The fund consists of five stocks with the following investments and betas: Stock Investment (RM) Beta 400,000 1.50 600,000 (0.50) 1,000,000 1.25 1,500,000 0.75 500,000 (0.25) B D E If the market's required rate of retum is 14 per cent and the risk-free rate is 6 per cent, what is the fund's required rate of return? (5 marks) (Total:25 marks) 7