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Calculate the payback and discounted payback period

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Problem: You are the junior financial analyst in Impact Resource Sdn Bhd, a company that produce a line of cosmetic products. Your boss requested you to perform a capital budgeting analysis and evaluate the two proposed projects with the following cash flow forecast:

Project A Project B

Initial Outlay RM(110,000) RM(110,000)

Year 1 RM20,000 RM40,000

Year 2 RM30,000 RM40,000

Year 3 RM40,000 RM40,000

Year 4 RM50,000 RM40,000

Year 5 RM70,000 RM40,000

These two projects involve additions to the company's existing product line and the company requires a rate of return on both project equal to 12 percent.

1. Compute the NPV for both projects.

2. Calculate the payback and discounted payback period for both projects.

3. Decide which project to be choose if it is a mutually exclusive project. Briefly explain your decision.

4. Discuss the importance of the time value of money in finance.

Reference no: EM132494330

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