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)