A project with the following cash flows received each year and with a required return of 8%. Initial Outlay = RM100 Cash Flows: Year 1 = RM40 Year 2 = RM50 Year 3 = RM60 With the information given, compute: i. Discounted payback period ii. Net Present Value and iii. Profitability Index.

A project with the following cash flows received each year and with a required return of 8%. Initial Outlay = RM100 Cash Flows: Year 1 = RM40 Year 2 = RM50 Year 3 = RM60 With the information given, compute: i. Discounted payback period ii. Net Present Value and iii. Profitability Index.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 10P

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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

A project with the following cash flows received each year and with a required return of 8%.
Initial Outlay = RM100
Cash Flows: Year 1 = RM40
Year 2 = RM50
Year 3 = RM60

With the information given, compute:

i. Discounted payback period

ii. Net Present Value and

iii. Profitability Index.

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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