TUTORIAL 2 : CHAPTER 3

1. You have submitted three project proposals to your company. Project A has an NPV (net
present value) of RM30,000 and will take six years to complete. Project B has an NPV of
RM60,000 and will take three years to complete. Project C has an NPV of RM90,000 and
will take two years to complete. Based on this information, which project is likely to be
chosen by your company?

Answer: Project C

2. Calculate and display the Net Present Value (NPV) of the following projects X, Y and Z.
assuming a 8% discount rate.

All values are in Ringgit Malaysia.

Year X Y Z
0 (9,000) (12,000) (25,000)
1 5,500 7,000 13,000
2 1,800 2,000 9,000
3 800 3,000 6,000
4 3,000 5,000 1,000
5 1,500 2,000 2,500
NPV
(12 marks)

Answer:
Year A PV of A B PV of B C PV of C
- -
0 -9,000 -9,000.00 -12,000.00 -25,000.00
12,000 25,000
1 5,500 5,092.59 7,000 6,481.48 13,000 12,037.04
2 1,800 1,543.21 2,000 1,714.68 9,000 7,716.05
3 800 635.07 3,000 2,381.50 6,000 4,762.99
4 3,000 2,205.09 5,000 3,675.15 1,000 735.03
5 1,500 1,020.87 2,000 1,361.17 2,500 1,701.46
NPV 1,496.83 3,613.97 1,952.57

3. Based on answer in question 2 (b), which project should be selected? Explain your
answer.

Answer:
Project B should be selected (1 mark)
Because it offers the positive and highest NPV which is RM3,613.97.
The project or alternative with a higher NPV would be more desirable. (2 marks)