1. Lambour Cafe is attempting to evaluate the feasibility of investing RM190,000 in a project with five years
life. The cafe has estimated the associated cash inflows as shown in the Table 3. The required rate of return
is 12%.
Expected Cash Flow
Year
Project C19
Project C20
(RM)
(RM)
0
(190,000)
(190,000)
1
50,000
60,000
2
60,000
70,000
3
70,000
100,000
4
90,000
130,000
5
100,000
160,000
Table 3
a. Calculate each project's payback period.
(10)
b. Calculate each project's net present value (NPV).
(6)
c. Based on the results in (a) and (b), which project do you prefer? Why?
(4)
(Total: 20)