QUESTION 5

Muda Berhad is the leading infrastructure developers in the country. Being a nation building corporation, Muda Berhad has been invited by the Kuala Selangor District Council to develop a 39.8 hectors new housing project in Puncak Alam. The total initial investment stands at RM299.910 thousand. The total funding will be sourced by the Muda Berhad through a private funding organized by RHB Merchant Bank Berhad. The construction is expected to cause an additional funding of RM40 thousand in the first year and RM10 thousand in the second year. The cash inflow of RM210 thousand at the end of year 3, RM245 thousand at the end of year 4, RM201 thousand at the end of year 5. Year 6 will be 180 thousand. Finally RM145 thousand in the final year. The cost of funding for the housing project in Puncak Alam stands at 9.5 percent of interest annually. Corporate tax stands at 26%. Ignore depreciation. Muda Berhads investment committee has sets an investment policy of payback period not exceeding 5.5 years. Required:

a. Compute discounted payback period for the housing project in Puncak Alam (6 marks)

b. Compute the profitability index for the housing project in Puncak Alam. (3 marks)

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

d. Provide evaluation on the viability of Housing project in Puncak Alam to Mudah Berhad. Your recommendation must be supported with capital budgeting decision criterions.