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Compute the payback period for both projects

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Reference no: EM133100936

Question - You are considering the following independent projects to be undertaken in the near future. The information regarding the projects is given below:

Year

Cash flows (RM) Project JB

Cash flows (RM) Project SP

0

(150,000)

(135,000)

1

(20,000)

15,000

2

70,000

55,000

3

90,000

65,000

4

120,000

80,000

The cost of capital for the project is 9 percent and the tax rate is 30 percent.

Required -

i) Compute the payback period for both projects.

ii) Calculate the net present value (NPV) for both projects and justify which project should be selected.

iii) Compute the rates at which the NPV for both projects are equal to zero.

iv) Briefly explain two (2) advantages of profitability index in project evaluation.

Reference no: EM133100936

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