(c) Why is net present value considered to be a superior method of evaluating the cash flows from a project? (d) Evidence suggests that in spite of the theoretical superiority of net present value, financial managers use the internal rate of return approach just as often as the net present value method.
(c) Why is net present value considered to be a superior method of evaluating the cash flows from a project? (d) Evidence suggests that in spite of the theoretical superiority of net present value, financial managers use the internal rate of return approach just as often as the net present value method.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...
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Q 6 c & d
Please assist to answer Q6 C & D
![4. Awesome Corporation is considering an investment project proposal that requires an initial outlay of
RM500,000. The project is expected to provide net cash inflows of RM125,000 in year 1, RM250,000 in
year 2, RM300,000 in year 3, RM225,000 in year 4, RM100,000 in year 5, RM25,000 in year 6 and RMO in
year 7.
(a) Compute the payback period for the project.
(b) Compute the net present value of the project if the firm estimates its cost of capital to be
14%. Based on the project's net present value, should Awesome Corporation make this
investment? Why?
(c) Why is net present value considered to be a superior method of evaluating the cash flows from a
project?
(d) Evidence suggests that in spite of the theoretical superiority of net present value, financial
managers use the internal rate of return approach just as often as the net present value method.
Discuss the above statement.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0ea8e6dd-19ae-42c8-a6da-90708348ba1b%2F9d0288ef-4292-4334-b110-b96129114481%2Fpxi114f_processed.png&w=3840&q=75)
Transcribed Image Text:4. Awesome Corporation is considering an investment project proposal that requires an initial outlay of
RM500,000. The project is expected to provide net cash inflows of RM125,000 in year 1, RM250,000 in
year 2, RM300,000 in year 3, RM225,000 in year 4, RM100,000 in year 5, RM25,000 in year 6 and RMO in
year 7.
(a) Compute the payback period for the project.
(b) Compute the net present value of the project if the firm estimates its cost of capital to be
14%. Based on the project's net present value, should Awesome Corporation make this
investment? Why?
(c) Why is net present value considered to be a superior method of evaluating the cash flows from a
project?
(d) Evidence suggests that in spite of the theoretical superiority of net present value, financial
managers use the internal rate of return approach just as often as the net present value method.
Discuss the above statement.
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