QUESTION 5

Gamuda Berhad is the leading infrastructure developers in the country. Being a nation bulding corporation, Gamuda Berhad has been invited by the Kuala Selangor District Council to contruct a 198 hectors new housing project in Puncak Alam. The total initial investment stands at RM210 million. There is a company policy on capital investment exceeds $M200 million reads: any project that able to cover initial investment fund within 5 year is accepted provided other decision criterias are met. The total funding will be sourced by the Gamuda Berhad through a private funding organized by RHB Merchant Bank Berhad.

The construction is expected to cause an additional funding of RM40 million in the first year and RM10 million in the second year. The cash inflow of RM110 million at the end of year 3, RM245 million at the end of year 4,RM201 million at the end of year 5. Year 6 will be 120 million. Finally RM45 million in the final year. The cost of funding for the projet stands at 5.5 percent of interest annually. Corporate tax stands at 26%. Ignore depreciation.

Required:

a.

Compute discounted payback period for the project

(6 marks)

b.

Compute the profitability index for the project.

(3 marks)

c.

Compute the net present value (NPV) and internal rate of return (IRR) for the new exclusive township in Puncak Alam.

(7 marks)

d.

Provide evaluation on the viability of Project. Your recommendation must be supported with capital budgeting decision criterions.

(4 marks)

(Total 20 marks)

(Overall 100 marks)