Question: QUESTION 3 (25 MARKS) YAYA Industries has four potential projects with an initial cost of RM2,000,000 each. The capital budget for the year will only
QUESTION 3 (25 MARKS)
- YAYA Industries has four potential projects with an initial cost of RM2,000,000 each. The capital budget for the year will only allow YAYA industries to accept one of the four projects. Given the discount rates and the future cash flows of each project, calculate the NPV and justified which project should they accept.
| Year | Project A (RM) | Project B (RM) | Project C (RM) | Project D (RM) |
| 1 | 500,000 | 600,000 | 1,000,000 | 300,000 |
| 2 | 500,000 | 600,000 | 800,000 | 500,000 |
| 3 | 500,000 | 600,000 | 600,000 | 700,000 |
| 4 | 500,000 | 600,000 | 400,000 | 900,000 |
| 5 | 500,000 | 600,000 | 200,000 | 1,100,000 |
| Discount rate | 5% | 9% | 15% | 22% |
- marks)
- Monica and Rachel are having a discussion about IRR and NPV as a decision model for Monicas new restaurant. Monica wants to use IRR because it gives a very simple and intuitive answer. Rachel states that there can be errors made with IRR that are not made with NPV. Elaborate a type of error can be made with IRR but not with NPV.
(5 marks)
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