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The following information relates to three possible capital expenditure projects. Due to limited capital, only...

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Accounting

The following information relates to three possible capital expenditure projects. Due to limited capital, only one project can be accepted.

Project A B C

Initial cost RM200,000 RM230,000 RM180,000

Expected useful life 5 years 5 years 4 years

Resale value expected at

end of useful life RM10,000 RM15,000 RM8,000

Expected cash inflows RM RM RM

End year 1 80,000 100,000 55,000

2 70,000 70,000 65,000

3 65,000 50,000 95,000

4 60,000 50,000 100,000

5 55,000 50,000 NIL

The companys cost of capital is 18%. The 18% discount factors are as follows:

Year 1 0.8475

Year 2 0.7182

Year 3 0.6086

Year 4 0.5158

Year 5 0.4371

Required:

  1. Calculate the following for the proposed project:

  1. Net Present Value (Excel spreadsheet answer )
  2. Payback period (Excel spreadsheet answer )
  3. Internal Rate of Return (Excel spreadsheet answer )
  4. Accounting Rate of Return (using average initial investment) (Excel spreadsheet answer )

b. Discuss any TWO (2) advantages and disadvantages of using payback period.

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