ssume a RM300,000 investment and the following cash flows for two products: Product X RM 70,000 80,000 90,000 Year Product Y RM 1 80,000 95,000 105,000 125,000 2 3 4 95,000 ost of capital is 12%
ssume a RM300,000 investment and the following cash flows for two products: Product X RM 70,000 80,000 90,000 Year Product Y RM 1 80,000 95,000 105,000 125,000 2 3 4 95,000 ost of capital is 12%
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 21P
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Transcribed Image Text:TUTORIAL : CAPITAL BUDGETING (PAYBACK PERIOD, NPV, IRR)
QUESTION - 1
Assume a RM300,000 investment and the following cash flows for two products:
Year
Product X
Product Y
RM
80,000
95,000
105,000
125,000
RM
70,000
80,000
90,000
1
3
4
95,000
Cost of capital is 12%
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) Suggest which product may choose as per IRR.
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