UCSI University

SEMESTER: MAY 2015

BA303
CORPORATE FINANCE

Coursework Guidelines

Students are required to do this assignment in groups (up to 5 members per group).

Assignment due date is on .. during lecture hours ONLY. A hardcopy of

the assignment must be submitted. Late submission will be penalized in which 2 marks
per day will be deducted for lateness.

The assignment must have an introduction, body, conclusion and a table of contents.

Plagiarism is a serious form of cheating and plagiarized assignments will be penalized. If

you have any supporting sources of reference, please quote the reference and list down all
the sources in the references section at the last page.

Report Format

Typed report with all workings and calculations (if any) shown in the final report. Clear,
neat and orderly report will also be taken into account in the report evaluation process.

Your assignment should be typed using Microsoft Words in Times New Roman font size
12 with 1.5 line spacing.

In the front page of the report, students need to provide the following information:
1. Name (all group members)
2. Students ID Number (all group members)
3. Programme
4. Semester

Synopsis and Objectives

This case presents the cash flows of eight unidentified investments, all of equal initial investment
size. The students task is to rank the projects.
The first objective of the case is to motivate students to examine critically the principal capitalbudgeting criteria.
A second objective is to have students consider the problem that arises when net present value
(NPV) and internal rate of return (IRR) disagree as to the ranking of two mutually exclusive
projects.
Finally, the case is a vehicle for introducing the problem created by attempting to rank projects
of unequal life and the solution to that difficultythe equivalent-annuity criterion.

Answer the following questions:

1. Before doing any calculations, can we rank the projects just by comparing the different
cash flows?
2. In order to rank the projects, what analytical criteria can we use? How do you define each
criterion? Justify your answer.
3. Which of the two projects, 7 or 8, is more attractive? Justify your choice.
4. What rank should we assign to each project? In doing so, explain

Why do payback and NPV not agree completely?

Why do average return on investment and NPV not agree completely?

Which criterion is best?

Why do NPV and IRR disagree?

5. Are those projects suitable to be ranked on the basis of NPV? Some of the projects have
different lives, are we really measuring the net present value of the short-lived
projects?

End