Determine the initial capital of both projects, and sssuming both projects are mutually exclusive, suggest a capital budgeting decision using Net Present Value (NPV) criteria. Show workings.
Determine the initial capital of both projects, and sssuming both projects are mutually exclusive, suggest a capital budgeting decision using Net Present Value (NPV) criteria. Show workings.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Determine the initial capital of both projects, and sssuming both projects are mutually exclusive, suggest a capital budgeting decision using
Transcribed Image Text:3. Binaan Teguh Berhad (BTB) has two potential projects, Project A and Project B. The
forecasted cash flows and relevant information of the two projects are given below.
Year
Cash Flow (forecasted)
(RM’ million)
Project A
Project B
1
50
60
2
80
40
3
80
40
4
90
20
The internal rate of return (IRR) of Project A and Project B are 12 percent per year and 15
percent per year respectively. Both projects require initial capital in year 0 and having
cost of capital of 5|percent per year.
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