Question
Question B2 Your GeniusRide Co. director is working on Capital Budgeting for the company. Capital Budgeting is a process where a business evaluates potential projects
Question B2
Your GeniusRide Co. director is working on Capital Budgeting for the company. Capital Budgeting is a process where a business evaluates potential projects or investments. Examples are new product ventures, purchasing new factory, building etc. Your director asked you to analyse THREE (3) projects (or investments) for the company.
The initial cash outlay is RM 8,000.
After doing some survey, you forecasted your future cash flows for the THREE (3) projects as follows:
Year | Project Arkansas Ride | Project Bernardino Ride | Project Carolina Ride |
1 | 2,000 | 1,000 | 3,000 |
2 | 2,000 | 3,000 | 2,000 |
3 | 2,000 | 3,000 | 4,000 |
4 | 2,000 | 4,000 | 5,000 |
5 | 2,000 | 5,000 | 6,000 |
Using below methods, calculate:
- Payback period for all projects.
- Net present value for each project if interest rate is 6%.
- Internal Rate of Return (IRR) for project Arkansas only. Assume interest rate is 6%.
- Which project would you choose and why?
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