Finance: Capital Budgeting

2. Digital Word is considering two mutually exclusive projects. The required rate of return on these projects is 9%. The maximum allowable payback period for the project is 4 years. The two projects provide the following set of after-tax cash ows: vac-mm mom 3 Initial Outlay - RM 500,000 - RM 500.000 Inow year 1 120,000 132,000 Inow year 2 130,000 132,000 Inow year 3 140,000 132,000 Inow year 4 150,000 132,000 Inow year 5 150,000 132,000 Required: a. Determine the payback period for each project. b. Calculate the Net Present Value (NPV) and the Protability Index (PI) for each project. c. The Internal Rate of Return (IRR) for project A is 11.29%. Calculate the IRR for project B. d. Based on the IRR given and your answers in part (b) and (c) above, explain briey which project(s) should be accepted. e. What is the difference between mutually exclusive project and independent project? How do the accept-reject criteria differ if the above projects are mutually exclusive