Determine the initial capital of both projects, and sssuming both projects are mutually exclusive, suggest a capital budgeting decision using Net Present Value (NPV) criteria. Show workings. 3. Binaan Teguh Berhad (BTB) has two potential projects, Project A and Project B. Theforecasted cash flows and relevant information of the two projects are given below.YearCash Flow (forecasted)(RM’ million)Project AProject B15060280403804049020The internal rate of return (IRR) of Project A and Project B are 12 percent per year and 15percent per year respectively. Both projects require initial capital in year 0 and havingcost of capital of 5|percent per year.

Project A When IRR=12%, it means Present Value (PV) of cash inflow= Present Value (PV) of…

Answered: Determine the initial capital of both…

Determine the initial capital of both projects, and sssuming both projects are mutually exclusive, suggest a capital budgeting decision using Net Present Value (NPV) criteria. Show workings.

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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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Determine the initial capital of both projects, and sssuming both projects are mutually exclusive, suggest a capital budgeting decision using Net Present Value (NPV) criteria. Show workings.

3. Binaan Teguh Berhad (BTB) has two potential projects, Project A and Project B. The
forecasted cash flows and relevant information of the two projects are given below.
Year
Cash Flow (forecasted)
(RM’ million)
Project A
Project B
1
50
60
2
80
40
3
80
40
4
90
20
The internal rate of return (IRR) of Project A and Project B are 12 percent per year and 15
percent per year respectively. Both projects require initial capital in year 0 and having
cost of capital of 5|percent per year.

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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