Puan Jasmin is considering a project that requires an initial investment of RM120,000 and this is...

 

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Puan Jasmin is considering a project that requires an initial investment of RM120,000 and this is a 5-year project. This project is expected to have an after-tax cash flow of RM20,000 per year for the first two years, RM40,000 per year for the next two years, and RM50,000 for the fifth year. From the information given, you are required to answer the following questions. a. What is the Payback Period for the project? (3 Marks) b. Determine the Net Present Value for the project using a discount rate of 10%. (4 Marks) c. Compute the Internal Rate of Return of the project. (4 Marks) d. Give your recommendation to Puan Jasmin, whether to accept or reject this project if the policy of her company is to accept project within 6 years of payback period and the required rate of return is 10%. Explain your answer based on your earlier calculation in part (a) to (c). (4 Marks) Cost of Capital: Cost of Common Equity DCF Approach: The CAPM Approach: The Risk-Premium Approach: After-tax cost of debt = - ka(1-Tax rate). Cost of New Common Equity Ke = D1 + g ks: = D1+ g ks = Ks = Ро Krf + (Km-Krf)ẞ Krf (RPM)ẞ + Po flotation cost - Cost of Retained Earning, ks = (D1/Po) + g Weighted Average Cost of Capital (WACC) k wacc = Waka (1-T) + Wpskps + Weskes + W₁csk, d CS CS Capital Budgeting: ncs Payback Period = BY + UC BY UC = CF CF = the year before full recovery the unrecovered cost at start of year = the cash flow during the year Net Present Value NPV = Σ Annual Cash Flow - Initial Investment (1+k)t Net Present Value NPV = Σ Annual Cash Flow - Initial Investment (1+k)t Internal Rate of Return: IRR Initial Investments - Σ Annual Cash Flows = 0 IRR = A + { a a-b (1+IRR)t (B-A)} ABI В a = one of the discounting rate = the other discounting rate = the NPV at discounting rate A b === the NPV at discounting rate B Profitability Index (PI) PI = Present value of Future Net Cash Inflows Initial Outlays Puan Jasmin is considering a project that requires an initial investment of RM120,000 and this is a 5-year project. This project is expected to have an after-tax cash flow of RM20,000 per year for the first two years, RM40,000 per year for the next two years, and RM50,000 for the fifth year. From the information given, you are required to answer the following questions. a. What is the Payback Period for the project? (3 Marks) b. Determine the Net Present Value for the project using a discount rate of 10%. (4 Marks) c. Compute the Internal Rate of Return of the project. (4 Marks) d. Give your recommendation to Puan Jasmin, whether to accept or reject this project if the policy of her company is to accept project within 6 years of payback period and the required rate of return is 10%. Explain your answer based on your earlier calculation in part (a) to (c). (4 Marks) Cost of Capital: Cost of Common Equity DCF Approach: The CAPM Approach: The Risk-Premium Approach: After-tax cost of debt = - ka(1-Tax rate). Cost of New Common Equity Ke = D1 + g ks: = D1+ g ks = Ks = Ро Krf + (Km-Krf)ẞ Krf (RPM)ẞ + Po flotation cost - Cost of Retained Earning, ks = (D1/Po) + g Weighted Average Cost of Capital (WACC) k wacc = Waka (1-T) + Wpskps + Weskes + W₁csk, d CS CS Capital Budgeting: ncs Payback Period = BY + UC BY UC = CF CF = the year before full recovery the unrecovered cost at start of year = the cash flow during the year Net Present Value NPV = Σ Annual Cash Flow - Initial Investment (1+k)t Net Present Value NPV = Σ Annual Cash Flow - Initial Investment (1+k)t Internal Rate of Return: IRR Initial Investments - Σ Annual Cash Flows = 0 IRR = A + { a a-b (1+IRR)t (B-A)} ABI В a = one of the discounting rate = the other discounting rate = the NPV at discounting rate A b === the NPV at discounting rate B Profitability Index (PI) PI = Present value of Future Net Cash Inflows Initial Outlays

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Puan Jasmins Project Analysis a Payback Period The payback period is the time it takes to recover the initial investment We can calculate it using the ... View the full answer