Question $2$

You are considering two mutually exclusive projects. Both projects require an initial outlay of RM$200,000.$ The annual after tax cash flows of the projects are as follows:

Year

Project A$($RM$)$

Project B$($RM$)$

$1$

$40,000$

$80,000$

$2$

$44,000$

$100,000$

$3$

$52,000$

$60,000$

$4$

$64,000$

$5$

$120,000$

a$)$

If you choose the payback period method as your selection criteria, which alternative would you choose?

b$)$

Would your decision in a change if the cash flows in year $5$ for the project A is RM$1\mathrm{.}2$ million instead of RM$120,000?$