NSK Sdn Bhd. is evaluating a project of constructing two different types of chalet in their resort area. The initial investment for both chalet types are equal, that is RM160,000. The required rate of return for these projects is 10%. The following is the estimated annual cash flow for the first 6 years.

Based on the above information, you are required to make an analysis for the decision on capital budgeting based on these techniques:

(a) Payback period

(b) Net present value

(c) Profitability index

Initial outflow Year 1 Chalet type A Chalet type B (RM) (RM) (160,000) Cash inflows 40,000 30,000 40,000 35,000 40,000 35,000 40,000 30,000 40,000 40,000 40,000 51,000 2 3 4 5 6