Goldrums Ltd s trying to decide which project should be taken up, out of three possible investments. The initial investment would amount RM25,000. Scrap value at end of use would be nil.
Cost of capital is 12%. The net cash inflows from three projects under consideration are:
Year | Project N (RM) | Project V (RM) | Project Q (RM) |
1 | 7,000 | 12,000 | 10,000 |
2 | 6,000 | 12,000 | 10,000 |
3 | 8,000 | 15,000 | 10,000 |
4 | 10,000 | - | 11,000 |
5 | 12,000 | - | 11,000 |
For each possible project you are required to calculate capital budgeting and choose the best project under:
- Payback (7m)
- Net Present Value (11m)
- State one advantage and one disadvantage of payback period. (2m)
Replies (10)
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Also this is a UK site ... so reference to Malaysian Ringgits (suggesting the question is about a company trading in that jurisdiction) would be beyond the remit of the members - even if one was inclined to help you out on your cheeky request.
even if one was inclined to help you out on your cheeky request.
It’s the bone-idleness that really grates. Not asking for assistance; asking for someone to do it for them.
Try this one and see if you can do it:
https://www.chegg.com/homework-help/questions-and-answers/instruction-s-...
"Cost of capital is 12%..."
The question doesn't specify whether interest is to be calculated on a "compound" basis so that, for example, using Project N (and for simplicity's sake let's suppose the net cash inflows are brought into account at the end of each year rather than accruing evenly throughout) the interest for year 1 would be RM25K x 12% and for year 2 (RM25K-RM7K) x 12% and so on (so that eventually, during Year 5 using the assumed criteria, the cost of capital produces a positive inflow).
Or is Piggy supposed to assume that all of the net cash inflows are brought into account at the end of Year 5? (In which event the straight-line RM25K @ 12% p.a. would be the order of the day)
Ahha, well with a loan Piggy would be able to purchase the answer from:
https://www.chegg.com/homework-help/questions-and-answers/goldrums-ltd-s...
Very lazy of Piggy's lecturer to not bother changing the name Goldrums or vary any of the inflow amounts.
"The answers to your questions are 'yes', 'yes' and 'no' but not necessarily in that order"
Roy Jenkins answering questions in the HoC.