Question 2

1. Sang Bulan Sdn. Bhd. utilizes the payback method to evaluate the following investment proposals.

Year	Cash inflows (RM)
	Project A	Project B
	Initial Outlay = RM100,000	Initial Outlay = RM500,000
1	25,000	125,000
2	25,000	120,000
3	25,000	200,000
4	25,000	250,000
5	25,000	100,000

1. Compute the payback period for both projects.

(4 marks)

2. Suppose these two projects are mutually exclusive. Which project(s) should Sang Bulan accept?

(2 marks)

3. List and explain TWO limitations of payback method.

(3 marks)

2. Impian Rian Sdn. Bhd. expects to generate the following cash flows from a RM1,000,000 investments:

Year	Net Cash Inflows (RM)
0	(1,000,000)
1	100,000
2	400,000
3	500,000
4	300,000
5	100,000

You are required to compute:

1. Net present value of the investment if the firm estimates its cost of capital to be 10%.

(5 marks)

Continued

2. Profitability index.

(4 marks)

3. What is the cash conversion cycle for the firm below?

(4 marks)

Income Statement	RM
Sales	20,500,600
Cost of Goods Sold	16,000,000
Balance Sheet
Inventory	2,000,500
Accounts Receivable	1,500,800
Accounts Payable	1,200,000

4. Sang Mentari Berhad purchased goods with a purchase price of RM75,000 and credit terms of 2.5/15 net 30. If Sang Mentari Berhad paid for these goods on the 14th day after the date of sale, how much it must pay for the goods?

(3 marks)

(TOTAL: 25 MARKS)