Question 1

1. Define what is the payback period?
2. Explain the drawback of payback period and how to mitigate it?
3. Below is the information of project A, B and C. Calculate each project for payback period.

	Project A	Project B	Project C
Initial Capital Outlay	-8000	-12000	-15000
Free cash inflow
Year 1	2000	4000	5000
Year 2	2000	3000	5000
Year 3	2000	4000	3000
Year 4	2000	3000	3000
Year 5	2000	-	-

1. Based on the payback period calculation for each Project A B and C in question C. Which project to choose?
2. If the discounted free cash inflow is at 20%. Calculate the payback period in consideration of discounted free cash inflow for each project below.

	Project A	Project B	Project C
Initial Capital Outlay	-8000	-12000	-15000
Free cash inflow
Year 1	2000	4000	5000
Year 2	2000	3000	5000
Year 3	2000	4000	3000
Year 4	2000	3000	3000
Year 5	2000	-	-

Question 2

1. Define what is the Net Present Value?
2. Explain the benefits of Net Present Value
3. Below is the information of project T-Shirt and Blouse. Calculate each project for Net present value.

	Project T Shirt	Project Blouse
Initial Capital Outlay	50,000	40,000
Free cash inflow
Year 1	20,000	15.000
Year 2	15,000	15,000
Year 3	10,000	10,000
Year 4	10,000	5,000
Year 5	5,000	5,000

1. Based on the net present value calculation in C. Which projects give the highest net present value?

Question 3

1. What is the profitability Index?
2. A firm with Initial Cash Outlay is RM20,000. 10% required rate of return considering investing in the new technology machine with expected life for 3 years [Year 1:15,000; Year 2: 10,000 Year 3: 10,000]. Calculate the Profitability Index for the new technology machine?
3. Based on the calculation in C. Please advise whether the new investment should proceed or not?

: INTRODUCTION TO FINANCE