QUESTION 2

Rajawali Sdn Bhd has two potential projects with an initial cost of RM1,500,000. The capital budget for the year will only allow the company to accept one of the two projects. Year Project A Project B 1 RM400,000 RM200,000 2 RM400,000 RM400,000 3 RM400,000 RM600,000 4 RM400,000 RM400,000 5 RM400,000 RM1,000,000 The cost of capital is 11%.

(a) Calculate the following:

i. Payback period for both projects.

ii. Net present value for both projects.

iii. Internal rate of return for Project A. (Use interpolation technique)

iv. Which project is the best? State your reasons