(a) (b) Everyday Mart Bhd. is an established supermarket in Malaysia and is planning for a...
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(a) (b) Everyday Mart Bhd. is an established supermarket in Malaysia and is planning for a market expansion by undertaking projects. Currently, there are two projects to be evaluated and the cost of capital of the company is 9%. Net present values (NPVs) of the two projects are derived as below: Year (ii) (iii) 0 1 2 Cash Flow (RM) Project A -180,000 61,250 61,250 61,250 0 47,297.25 61,250 245,000 43,389.50 Net Present Value (NPV) 18,431.63 Based on the information above, answer the following questions: (i) Both Project A and B have the same initial cash outflows and total future cash inflows but with different NPVs. Explain the concept of time value of money and how it results in the different NPVS derived. (9 marks) Calculate the NPVs of Project A and B if the cost of capital is 22%. (7 marks) Based on your answers in (a) (ii) above, which project(s) should be invested? Justify your answer based on the NPV decision rule. (2 marks) 3 4 Discount Factor (9%) Project B -180,000 0 0 Present Value of Cash Flow (RM) 1 0.9174 0.8417 0.7722 0.7084 Project A -180,000 56,190.75 51,554.13 Project B -180,000 0 0 0 173,558.00 -6,442.00 Mark is currently 35 years old and he would like to retire when he turns 60 years old. He expects to enjoy a retirement life of 22 years and has recently opened an investment account which offers a 6% annual compounding interest return which requires an end-of-year deposit of RM 5,650. Compute the maximum annual retirement benefit that Mark may withdraw during his retirement life. (7 marks) [Total: 25 marks] (a) (b) Everyday Mart Bhd. is an established supermarket in Malaysia and is planning for a market expansion by undertaking projects. Currently, there are two projects to be evaluated and the cost of capital of the company is 9%. Net present values (NPVs) of the two projects are derived as below: Year (ii) (iii) 0 1 2 Cash Flow (RM) Project A -180,000 61,250 61,250 61,250 0 47,297.25 61,250 245,000 43,389.50 Net Present Value (NPV) 18,431.63 Based on the information above, answer the following questions: (i) Both Project A and B have the same initial cash outflows and total future cash inflows but with different NPVs. Explain the concept of time value of money and how it results in the different NPVS derived. (9 marks) Calculate the NPVs of Project A and B if the cost of capital is 22%. (7 marks) Based on your answers in (a) (ii) above, which project(s) should be invested? Justify your answer based on the NPV decision rule. (2 marks) 3 4 Discount Factor (9%) Project B -180,000 0 0 Present Value of Cash Flow (RM) 1 0.9174 0.8417 0.7722 0.7084 Project A -180,000 56,190.75 51,554.13 Project B -180,000 0 0 0 173,558.00 -6,442.00 Mark is currently 35 years old and he would like to retire when he turns 60 years old. He expects to enjoy a retirement life of 22 years and has recently opened an investment account which offers a 6% annual compounding interest return which requires an end-of-year deposit of RM 5,650. Compute the maximum annual retirement benefit that Mark may withdraw during his retirement life. (7 marks) [Total: 25 marks]
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i The concept of time value of money states that the value of money changes over time due to factors such as inflation and the potential to earn a ret... View the full answer
Related Book For
Contemporary Business Mathematics with Canadian Applications
ISBN: 978-0133052312
10th edition
Authors: S. A. Hummelbrunner, Kelly Halliday, K. Suzanne Coombs
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