Question: Razak is considering two projects: Project A requires an initial investment of RM1,500,000 to yield estimated annual cash flows of:) RM150,000 in Year 1 RM

Razak is considering two projects:

Project A requires an initial investment of RM1,500,000 to yield estimated annual cash flows of:) RM150,000 in Year 1 RM 300,000 in Year 2 RM 500,000 in Year 3 RM 200,000 in Year 4 RM 600,000 in Year 5 RM 500,000 in Year 6 RM 100,000 in Year 7 The appropriate discount rate for this project is 4%.

Project B requires an initial investment of $3,000,000 to yield estimated annual cash flows of:) RM 100,000 in Year 1 RM 500,000 in Year 2 RM 1,000,000 in Year 3 RM 1,500,000 in Year 4 RM 200,000 in Year 5 RM 500,000 in Year 6 RM 1,000,000 in Year 7 The appropriate discount rate for this project is 6%.

Razak is only able to undertake one project. Using the profitability index method, which project should Razak undertake?)

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