QUESTION 3

Mohd Azrin Basirum as a financial manager analyzed two projects. The cost of capital is 12% and expected cash flows for each project are given as follows:

Year PROJECT A (RM) PROJECT B (RM)

010,00010,000

17,0004,000

23,5004,000

33,0004,000

41,5004,000

a)Calculate the followings:

i.Payback period for the two projects.

ii.Net Present Value for the two projects.

iii.Internal rate of return for Project B only.

iv.Which project would be selected and state your reasons.

b)List two disadvantages of using the payback period as a capital budgeting tool.

c)What does the term 'mutually exclusive' mean?

QUESTION 4

Million Sdn Bhd is in the process of expansion its business operation. Provided below is the

after tax cash flows for both projects.

Year Project A (RM) Project B (RM)

050 00047 000

115 00020 000

215 000 (10 000)

315 00015 000

415 00014 000

515 00020 000

The cost of capital is 10% and the projects are mutually exclusive.

a)Calculate the followings:

i.Payback period for the projects.

ii.Net present value for the two projects.

iii.Internal rate of return for project A.

iv.Which project should be selected and state your reason.

b)Differentiate between independent project and mutually exclusive project.

QUESTION 5

a)Jati Corporation is evaluating two mutually exclusive projects. Below is the after-tax cash flows for both projects.