Johnson & Johnson Corporation has plan to diversify their business. One is to open a fast-food restaurant and the other one is an opening of boutique. Both are located in Kuala Lumpur and both projects are forecast to be opened in June 2022. Fast-food restaurant has been given the name as J&J Restaurant and the initial investment is RM150,000. While the boutique has been given name as Jie & Joe ane the cost involved is about RM100,000. The cost of capital is 12%. As a finance manager you are forecasting both projects on the annual cash flow based on few methods. The cash flow are as follows: J&J Restaurant Annual Cash Flows: 1st year RM40,000, 2nd year increase to RM55,000, 3rd year increase by RM10,000, the 4th year is RM70,000 and the 5th year is RM85,000 Jie & Joe Boutique Annual Cash Flows: 1st year RM30,000, 2nd year increase by RM15,000, 3rd year is RM45,000 and the 4th year is RM50,000 and the 5th year is RM70,000 You determine the above annual cash flows according to: 1) Payback period 2) Discounted payback period 3) NPV 4) Profitability Index (PI) Your requirement as follows: 1) The project should cover at least in Year 3 2) To decide from each of the above methods which are the best project to accept and to reject either they are independent projects or both are mutually exclusive.
Johnson & Johnson Corporation has plan to diversify their business. One is to open a fast-food restaurant and the other one is an opening of boutique. Both are located in Kuala Lumpur and both projects are forecast to be opened in June 2022. Fast-food restaurant has been given the name as J&J Restaurant and the initial investment is RM150,000. While the boutique has been given name as Jie & Joe ane the cost involved is about RM100,000. The cost of capital is 12%. As a finance manager you are forecasting both projects on the annual cash flow based on few methods. The cash flow are as follows: J&J Restaurant Annual Cash Flows: 1st year RM40,000, 2nd year increase to RM55,000, 3rd year increase by RM10,000, the 4th year is RM70,000 and the 5th year is RM85,000 Jie & Joe Boutique Annual Cash Flows: 1st year RM30,000, 2nd year increase by RM15,000, 3rd year is RM45,000 and the 4th year is RM50,000 and the 5th year is RM70,000 You determine the above annual cash flows according to: 1) Payback period 2) Discounted payback period 3) NPV 4) Profitability Index (PI) Your requirement as follows: 1) The project should cover at least in Year 3 2) To decide from each of the above methods which are the best project to accept and to reject either they are independent projects or both are mutually exclusive.
Chapter7: Valuation Of Stocks And Corporations
Section: Chapter Questions
Problem 1hM
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Johnson & Johnson Corporation has plan to diversify their business. One is to open a fast-food
restaurant and the other one is an opening of boutique. Both are located in Kuala Lumpur and
both projects are forecast to be opened in June 2022. Fast-food restaurant has been given the
name as J&J Restaurant and the initial investment is RM150,000. While the boutique has been
given name as Jie & Joe ane the cost involved is about RM100,000. The cost of capital is 12%.
As a finance manager you are forecasting both projects on the annual cash flow based on few
methods. The cash flow are as follows:
J&J Restaurant Annual Cash Flows:
1st year RM40,000, 2nd year increase to RM55,000, 3rd year increase by RM10,000, the 4th year
is RM70,000 and the 5th year is RM85,000
Jie & Joe Boutique Annual Cash Flows:
1st year RM30,000, 2nd year increase by RM15,000, 3rd year is RM45,000 and the 4th year is
RM50,000 and the 5th year is RM70,000
You determine the above annual cash flows according to:
1) Payback period
2) Discounted payback period
3) NPV
4) Profitability Index (PI)
Your requirement as follows:
1) The project should cover at least in Year 3
2) To decide from each of the above methods which are the best project to accept and to
reject either they are independent projects or both are mutually exclusive.
wihilinc Good to go
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