Solution-Calculate the payback period

Calculate the payback period

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Reference no: EM133034676

QUESTION - You are a CFO of an international investment firm based in Kuching, Sarawak. You have been assigned to evaluate and inform the management on three mutually exclusive projects financing which is scheduled to begin next year.

Based on the preliminary evaluation, the projected cash flows are summarised in the following table. The cost of borrowing to finance the project is currently at 10%.

Cash Flows forecast (RM'000)
Year	Pontianak Project	Brunei Project	Balikpapan Project
0	130,000	120,000	150,000
1	50,000	42,000	40,000
2	50,000	42,000	48,000
3	55,000	42,000	65,000
4	63,000	42,000	80,000
5	40,000	42,000	70,000
Total inflows	258,000	210,000	303,000

Required -

a) Calculate the payback period (PP), the net present value (NPV), the profitability index (PI) and the internal rate of returns for each project.

b) Determine the rankings of the three stores based on your findings in (a) and also stating the decision criteria in each method.

c) Since it is a mutually exclusive decision, the CEO favors the project with the highest IRR. What do you think the company should do, and why? (You may also suggest your personal insights of the risks that may be associated with the divisions proposed).

Reference no: EM133034676

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Calculate the payback period

Reference no: EM133034676

Reference no: EM133034676

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