Tutorial 9 ARR PP NPV - IRR

QUESTION 1

Max Ltd is trying to decide which project should be taken up, out of three possible investments.

The initial investment would amount to RM250,000. Scrap value at end would be nil. Cost of capital is 9%.

The net cash inflows from the three projects under consideration are:

Period	Project A RM	Project B RM	Project C RM
Year 1	50,000	70,000	80,000
Year 2	60,000	100,000	80,000
Year 3	70,000	130,000	80,000
Year 4	80,000	_	80,000
Year 5	100,000	_	_
Total	360,000	300,000	320,000

Required:

For each possible project you are required to calculate:

(a) Accounting rate of return (ARR)

(b) Payback period (PP)

(c) Net present value (NPV)

(d) Internal rate of return (IRR)

(e) Should the project be accepted? Why? Justify your answer in respect of all scenarios.