QUESTION 2   Your firm is trying to invest in a Project A for planning horizon of 5 years. The initial investment and initial revenue are RM300, 000 and RM10, 000 respectively. The cost for first year including renovation of building (RM5, 000), IT (RM5, 500) and maintenance (RM9, 000). The annual cost of operation is RM20, 000 for second year while remaining are RM10, 000. The company predicts that the project will generate a stream of earning RM100, 000, RM120, 000, RM130, 000 and RM150, 000 for first 4 years respectively. While the expected revenue of year 5 comes from 3rd party payment (RM70, 000), technology transfer (RM70, 000) and new systems (RM60,000).     Develop a gross cash flow and calculate the cash flow after tax of 30%.   Estimate the internal rate of return (IRR) after     If the Project B has IRR of 35%, decide the best investment and state your

EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter9: Capital Budgeting Techniques
Section: Chapter Questions
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QUESTION 2

 

Your firm is trying to invest in a Project A for planning horizon of 5 years. The initial investment and initial revenue are RM300, 000 and RM10, 000 respectively. The cost for first year including renovation of building (RM5, 000), IT (RM5, 500) and maintenance (RM9, 000). The annual cost of operation is RM20, 000 for second year while remaining are RM10, 000. The company predicts that the project will generate a stream of earning RM100, 000, RM120, 000, RM130, 000 and RM150, 000 for first 4 years respectively. While the expected revenue of year 5 comes from 3rd party payment (RM70, 000), technology transfer (RM70, 000) and new systems (RM60,000).

 

 

  1. Develop a gross cash flow and calculate the cash flow after tax of 30%.

 

  1. Estimate the internal rate of return (IRR) after

 

 

  1. If the Project B has IRR of 35%, decide the best investment and state your
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