(d)Calculate the internal rate of return (IRR) for project ENGKAU. (e) Based on the IRR given and your answers in part (b) and (c) above, explain briefly which project should be accepted, If they are independent? If they are mutually exclusive?
for Question part (d) and (e)
The UMCCED Technology is considering two genetic research projects. The required
|
|
Project AKU |
Project ENGKAU |
|
Initial outlay |
-RM50,000 |
-RM50,000 |
|
Inflow year 1 |
RM10,000 |
RM16,000 |
|
Inflow year 2 |
RM18,000 |
RM16,000 |
|
Inflow year 3 |
RM15,000 |
RM16,000 |
|
Inflow year 4 |
RM16,000 |
RM16,000 |
|
Inflow year 5 |
RM13,000 |
RM16,000 |
Required:
(a)Determine the payback period for each project. If the institute imposes a 3.5-year maximum acceptable payback period, which of these projects should be accepted? *Both projects can be accepted because the payback period of both projects is lower than the maximum acceptable payback period of 3.5 years but project ENGKAU is more profitable because its payback period is lower than the payback period of project AKU.
(b)Calculate the
*The NPV of the project AKUis RM2,840.65 and the NPV of project ENGKAU is RM9,134.35.
(c)Calculate profitability index (PI) for each project.
*The PI of the project AKU is 1.06 and the PI of project ENGKAU is 1.18.
(d)Calculate the
(e) Based on the IRR given and your answers in part (b) and (c) above, explain briefly which project should be accepted,
- If they are independent?
- If they are mutually exclusive?
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