Answer to Question #202622 in Finance for MAGESWARAN GOPAL

Question

1. Compute the (i) net present value and (ii) internal rate of return of the following capital budgeting

projects. The firm’s required rate of return is 12 percent.

Projects

Year Zeta(RM) Omega (RM)

0 (50,000) (45,000)

1 20,000 42,000

2 15,000 9,000

3 30,000 1,850

2. White Light Sdn Bhd is planning to expand. The company wants to introduce a herbal drink in

addition to its fruit juice drink. For this purpose, the company needs to purchase a special machine.

The cost of the machine is RM400,000 plus an additional RM80,000 for shipping and installation.

The machine is expected to have a useful life of five years with zero salvage value. In order to

start production, inventories amounting to RM50,000 are required and accounts receivable is

expected to increase by RM10,000. To study consumer’s preference, the company did a market

survey last year. An amount of RM30,000 was spent for this purpose. Calculate the initial outlay

for the propose project.

Answer 1

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