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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
48,000
3
55,000
65,000
4
63,000
80,000
5
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.
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