Question

Question 13 which project in Question 12 would you select based on the net present capital is 12%? select based on the net present value method if your cost of Question 14 unshine Love Company is considering two mutually exclusive projects, one with ther 6-year life. The after-tax cash flows from the two projects are as follows: Year Project A (RM) Project B (RM) (400,000) (400,000) NOV 162,000 120,000 162,000 120,000 162,000 120,000 162,000 120,000 120,000 120,000 tahunxcama a Assuming a 15% required rate of return on both projects, calculate each project's m e i. payback period. tahun sama ii. net present value. iii. internal rate of return. iv. profitability index. b. Which project should be accepted? Explain. Required:

Answer 1

Q14) Project A

i) payback period = full year until recovery + unrecovered cost at the beginning of the last year / cash flow during last year

= 2 + 76,000/162,000

= 2 + 0.47

= 2.47

ii) Net present value

Using financial calculator

Inputs: C0= -400,000

C1= 162,000. Frequency= 4

I = 15%

Npv = compute

We get , NPV= $62,506.5

iii) IRR

Using financial calculator

Inputs: C0= -400,000

C1= 162,000. Frequency= 4

Irr = compute

We get, IRR = 22.54%

iv) profitability index = cash outflow + NPv / cash outflow

= 400,000 + 62,506.5 /400,000

= 462,506.5 / 400,000

= 1.16

Project B

i) Payback period = full year until recovery + unrecovered cash at the beginning of the last year / cash flow during last year

= 3 + 40,000 / 120,000

= 3 + 0.3333

= 3.33 years

ii) Net present value

Using financial calculator

Inputs: C0 = -400,000

C1 = 120,000. Frequency= 6

I = 15%

Npv = compute

We get, NPV = $ 54,138

iii) IRR

Using financial calculator

Inputs: C0 = -400,000

C1 = 120,000. Frequency= 6

Irr = compute

We get, Irr = 19.91%

iv) Profitability index = cash outflow + Npv / cash outflow

= 400,000 + 54,138 / 400,000

= 454,138 / 400,000

= 1.14

B) we should choose project A , as the Npv of the project is higher.