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The firm has two potential projects which is mutually exclusive in next year. One is...

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Finance

The firm has two potential projects which is mutually exclusive in next year. One is the development of 30th floor of a condominium in Ampang and 100 units of semi-detached in Seremban. The condominium project known as Project Exora while semi-detached known as Project Seroja. The firm will use RM70 million and RM50 million as an initial investment for both projects. The firm will use the cost of capital of 10% to determine for these two projects.

The firm has forecasting the cash flows for both projects as follows:

Year

Project Exora

Project Seroja

0

(RM70,000,000)

(RM50,000,000)

1

4,000,000

80,000

2

5,000,000

1,000,000

3

2,000,000

2,000,000

4

7,000,000

3,000,000

5

10,000,000

3,000,000

Required:

  1. Compute the discounted payback period for each of these two projects? If the firm still maintains its four years payback policy for the discounted payback, which projects should the firm undertake?

(8 marks)

(CLO3:PLO5:C3)

  1. Compute according to Net Present Value (NPV) and IRR method. Do you still accept the same project as in (a)? Why?

(6 marks)

(CLO3:PLO5:C3)

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