a) A business owner has a choice of 2 investment projects. The initial cost of Project...

  

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a) A business owner has a choice of 2 investment projects. The initial cost of Project A is RM110,000 and that for Project B is RM95,000. Their estimated life is 4 years. Repair and maintenance costs are expected to average RM8,500 per annum for each project. Estimated revenue returns are as follows: i. Year 1 2 3 4 iii. Project A (RM) 30,000 30,000 35,000 55,000 Use the investment appraisal method of average rate of return to advise the owner on which project is a better investment. b) Another business owner has a choice of another 2 investment projects. The estimated costs and returns of the 2 projects are as follows: Cost Year 1 cash flow Year 2 cash flow Year 3 cash flow Year 4 cash flow Project B (RM) 25,000 35,000 40,000 30,000 Project X (RM) 180,000 60,000 40,000 50,000 50,000 Project Y (RM) 150,000 50,000 -20,000 70,000 70,000 12% DF 1.0000 0.8929 0.7972 0.7118 0.6355 3% DF 1.0000 0.9709 0.9426 0.9151 0.8885 Calculate the payback period for each of the project and then advise the owner on which project is a better investment. ii. Using a discount factor of 12%, calculate the Net Present Value for each project and then advice the owner on which project is a better investment. Using the project as advised in part (ii), find the NPV of that project at 3% discount factor and then determine the IRR of that project. a) A business owner has a choice of 2 investment projects. The initial cost of Project A is RM110,000 and that for Project B is RM95,000. Their estimated life is 4 years. Repair and maintenance costs are expected to average RM8,500 per annum for each project. Estimated revenue returns are as follows: i. Year 1 2 3 4 iii. Project A (RM) 30,000 30,000 35,000 55,000 Use the investment appraisal method of average rate of return to advise the owner on which project is a better investment. b) Another business owner has a choice of another 2 investment projects. The estimated costs and returns of the 2 projects are as follows: Cost Year 1 cash flow Year 2 cash flow Year 3 cash flow Year 4 cash flow Project B (RM) 25,000 35,000 40,000 30,000 Project X (RM) 180,000 60,000 40,000 50,000 50,000 Project Y (RM) 150,000 50,000 -20,000 70,000 70,000 12% DF 1.0000 0.8929 0.7972 0.7118 0.6355 3% DF 1.0000 0.9709 0.9426 0.9151 0.8885 Calculate the payback period for each of the project and then advise the owner on which project is a better investment. ii. Using a discount factor of 12%, calculate the Net Present Value for each project and then advice the owner on which project is a better investment. Using the project as advised in part (ii), find the NPV of that project at 3% discount factor and then determine the IRR of that project.

Answer rating: 100% (QA)

1 a Answered as per investment appraisal method of average rate of return Year Project A Project B RM RM 1 30000 25000 2 30000 35000 3 35000 40000 4 5... View the full answer