1.

Tokyo Rubber Corporation is considering two mutually exclusive projects for their
future investment. The initial cost outlay associate with Dry Prepreg is RM100,000 and
Solvent Prepreg is RM170,000. The discount rate for both projects is 10 percent. The
expected annual cash flow as follows:

Year Expected Cash flow

Dry Prepreg Solvent Prepreg
1 61,000 10,000
2 61,000 25,000
3 61,000 25,000
4 61,000 65,000
5 61,000 95,000
6 61,000 95,000

Calculate the following for both projects:

(a) Payback period

(b) Net Present Value (NPV)
(c) Profitability Index
(d) Explain the best project that Tokyo Rubber Corporation should take.

2. Agora Berhad is in the process of choosing the better of two mutually exclusive
projects. The relevant cash flow is given and firm’s cost of capital is 14%.

PROJECT M PROJECT N

Initial Investment (RM 28 500) (RM 30 000)

Year Cash inflows

1 10 000 11 000

2 10 000 10 000

3 10 000 9 000

4 10 000 8 000
Calculate for each project:
1. Payback period
2. Net Present Value
3. Profitability index
4. Which project that company must choose? Why?

3. Firdaus Sdn Bhd is a company that provides car rental services. The company is
now considering on buying a new car to increase its service capacity. There are two
 models, Suzukee and Toyoda. The price for each Suzukee and Toyoda model is
RM74,000 and RM 60,200 respectively. Both models can be used for 5 years. The
annual after tax net cash flows for the models are as follows:

Suzukee Toyoda

Year Cash inflows

1 32,000 24,000

2 32,000 24,000

3 32,000 24,000

4 32,000 24,000

5 32,000 24,000
 The company’s required rate of return is 14%.

Based on the information given, calculate;

1.Payback period for both project
2. Net Present Value (NPV)
3. Profitability Index (PI)
4. Which project that company must choose? Why?