Question: Q4. Light and Easy Sdn. Bhd. is considering two mutually exclusive projects, Project Awan and Project Mendung. Both projects require an initial outlay of RM

Q4. Light and Easy Sdn. Bhd. is considering two mutually exclusive projects, Project Awan and Project Mendung. Both projects require an initial outlay of RM 100,000 and have different levels of risk. The expected period of the project is 5 years with the probability distribution and cash flows as follows.

: (i) Expected return (2 marks)

(ii) Standard deviation (2 marks)

(iii) Coefficient variation (2 marks)

(b) If these projects have different levels of risk and the company has decided to use a minimum rate of return of 12% for the less risky project and 16% for the higher risk project. Calculate the NPV of each project. (10 marks)P

PROJECT AWAN	PROJECT MEDUNNG
PROBABILITY CASH FLOWS	PROBABILITY CASH FLOWS
0.1 30000	0.1 25000
0.4 40.000	0.2 50000
0.4 35.000	0.4 20.000
0.1 25.000	0.3 40.000

(c) Based on the risk calculation in (i) and (ii), briefly explain which project should be chosen by Light and Easy Sdn. Bhd.? (4 marks)

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