Answers for q5,6,7

5. This problem will give you some practice calculating NPVs and paybacks. A proposed overseas expansion has the following cash flows: Year Cash Flow (RM) 0 - 250 1 60 70 W N 180 4 200 Compute the payback, the discounted payback, and the NPV at a required return of 10 percent. 6. Consider the following two mutually exclusive investments. Calculate the IRR for each and the crossover rate. Under what circumstances will the IRR and NPV criteria rank the two projects differently? Year Investment A Investment B (RM) (RM) 0 -850 -850 250 500 450 450 700 250 7. Consider the following two mutually exclusive projects: Year Cash Flow A (RM) Cash Flow B (RM) 0 - 300,000 - 40.000 1 20,000 19,000 IN 50.000 12,000 3 50.000 18,000 4 390.000 10,500 Whichever project you choose, if any, you require a 15 percent return on your investment. a. If you apply the payback criterion, which investment will you choose? Why? b. If you apply the discounted payback criterion, which investment will you choose? Why? c. If you apply the NPV criterion, which investment will you choose? Why? d. If you apply the IRR criterion, which investment will you choose? Why? e. If you apply the profitability index criterion, which investment will you choose? Why? f. Based on your answers in (a) through (e), which project will you finally choose? Why