ZEF Incorporated is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects—M and N. The relevant cash flows for each project are shown in the following table. The firm’s cost of capital is based on answer in questiona) above Project M (RM)Project N (RM)Initial Investment (RM)28,50027,000YearCash Flow (RM)110,00011,000210,00010,000310,0009,000410,0008,000 b. Calculate the payback period for each project. The maximum allowable payback period set by the company for all projects is 3 years.Note: No hand writing !

For project M, Let initial investment = C Annual cashflow = A

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 7P

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a) above

	Project M (RM)	Project N (RM)
Initial Investment (RM)	28,500	27,000
Year	Cash Flow (RM)
1	10,000	11,000
2	10,000	10,000
3	10,000	9,000
4	10,000	8,000

b. Calculate the payback period for each project. The maximum allowable payback period set by the company for all projects is 3 years.

Note: No hand writing !

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