Apa Kedana Berhad is considering the following two projects: Project Initial outlay Net cash flows for year:
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Question:
Project | Initial outlay | Net cash flows for year: | |||
1 | 2 | 3 | 4 | ||
Sakit Hati | RM4,000,000 | RM2,003,000 | RM2,003,000 | RM2,003,000 | RM2,003,000 |
Suka Hati | RM4,000,000 | RM11,000,000 |
From the information given, you are required to answer the following questions:
1. Calculate the Net Present Value for each project assuming a 14% discount rate.
2. Calculate the Payback Period for each project.
3. If 14% is the required rate of return, and Papa Kedana Berhad imposes a 5-year acceptable payback period, and these projects are independent, what decision should be made? Explain your answer.
4. If 14% is the required rate of return, and Papa Kedana Berhad imposes a 5-year acceptable payback period, and the projects are mutually exclusive, what decision should be made? Explain your answer.
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