PART BQUESTION 3 (ANYUMAN CORPORATION)

Part A
PROJECT P
YEAR NET CASH FLOW DISCOUNT FACTOR at PRESENT VALUE
(RM) 12% (RM)
Cash inflow- Cash [1/(1+ i)n]
outflow
0 (250,000) 1.0000 (250,000)
1 80,000 0.8929 71,432
2 80,000 0.7972 63,776
3 80,000 0.7118 56,944
4 80,000 0.6355 50,840
5 80,000 0.5674 45,392
6 80,000 0.5066 40,528

Net Present Value (NPV) of PROJECT P

= (RM 250,000) + RM 71,423 + RM 63,776 + RM 56,944 + RM 50,840 + RM 40,528
= RM 78,912.

PROJECT Q
YEAR NET CASH FLOW DISCOUNT FACTOR at PRESENT VALUE
(RM) 12% (RM)
Cash inflow- Cash [1/(1+ i)n]
outflow
0 (150,000) 1.0000 (150,000)
1 60,000 0.8929
53,574
2 88,000 0.7972 70,153.60
3 65,000 0.7118
46,267
4 32,000 0.6355
20,336
5 - - -
6 - - -
Net Present Value (NPV) of PROJECT Q
= (RM 150,000) + RM 53,574 + RM 70,153.60 + RM 46,267 + RM 20,336
= RM40, 330.60

PROJECT R
YEAR NET CASH FLOW DISCOUNT FACTOR at PRESENT VALUE
(RM) 12% (RM)
Cash inflow- Cash [1/(1+ i)n]
outflow
0 (180,000) 1.0000 (180,000)
1 41,000 0.8929 36,608.90
2 45,000 0.7972 35,874
3 55,000 0.7118 39,149
4 50,000 0.6355 31,775
5 - - -
6 - - -

Net Present Value (NPV) of PROJECT R

= (RM 180,000) + RM 36,608.90 + RM 35,874 + RM 39,149 + RM 31,775
= (RM 36,593.10) ~ Negative Value ~ Loss
PROJECT S
YEAR NET CASH FLOW DISCOUNT FACTOR at PRESENT VALUE
(RM) 12% (RM)
Cash inflow- Cash [1/(1+ i)n]
outflow
0 (187,000) 1.0000 (187,000)
1 59,000 0.8929 52,681.10
2 60,000 0.7972 47,832
3 60,000 0.7118 42,708
4 60,000 0.6355 38,130
5 - - -
6 - - -

Net Present Value (NPV) of PROJECT S

= (RM 187,000) + RM 52,681.10 + RM 47,832 + RM 42,708 + RM 38,130
= (RM 5648.90) ~ Negative Value ~ Loss

PROJECT T
YEAR NET CASH FLOW DISCOUNT FACTOR at PRESENT VALUE
(RM) 12% (RM)
Cash inflow- Cash [1/(1+ i)n]
outflow
0 (190,000) 1.0000 (190,000)
1 35,000 0.8929 31,251.50
2 49,000 0.7972 39,062.80
3 58,000 0.7118 41,284.40
4 67,000 0.6355 42,578.50
5 39,000 0.5674 22,128.60
6 - - -
Net Present Value (NPV) of PROJECT T
= (RM 190,000) + RM 31,251.50 + RM 39,062.80 + RM 41,284.40 + RM 42,578.50 + RM
22,128.60
= (RM 13,694.20) ~ Negative Value ~ Loss

PROJECT U
YEAR NET CASH FLOW DISCOUNT FACTOR at PRESENT VALUE
(RM) 12% (RM)
Cash inflow- Cash [1/(1+ i)n]
outflow
0 (170,000) 1.0000 (190,000)
1 36,000 0.8929 32,144.40
2 77,000 0.7972 61,384.40
3 80,000 0.7118 56,944
4 - - -
5 - - -
6 55,000 0.5066 27,863

Net Present Value (NPV) of PROJECT U

= (RM 170,000) + RM + RM 32,144.40 + RM 61,384.40 + RM 56,944 + RM 27,863
= (RM 8,335.80)
PART B

Internal rate of return for PROJECT P

Assume: NPV= 0 r1= 12% r2=14%

Ci
NPV =∑
(1+r )t
80,000 80,000 80,000 80,000 80,000 80,000
¿ (−250,000 ) + + + + + +
( 1+ 0.12 ) ( 1+ 0.12 ) ( 1+ 0.12 ) ( 1+ 0.12 ) ( 1+0.12 ) (1+ 0.12)6
1 2 3 4 5

¿ (−250,000 ) +71428.57+63775.51+56942.42+50841.45+45394.15+ 40530.49

¿ RM 78912.59

R1= 12% NPV1= RM78912.59

80,000 80,000 80,000 80,000 80,000 80,000

¿ (−250,000 ) + + + + + +
( 1+ 0.14 ) ( 1+0.14 ) ( 1+ 0.14 ) ( 1+0.14 ) (1+ 0.14 ) ( 1+ 0.14)6
1 2 3 4 5

¿ (−250,000 ) +70175.44+ 61557.40+ 53997.72+ 47366.42+41549.49+36446.92

¿ RM 61093.39

R2= 14% NPV2=RM 61093.39

NPV 1
IRR=r 1+ X ( r 2−r 1 )
( NPV 1−NPV 2 )
78912.59
¿ 12 %+ x ( 14 %−12 % )
( 78912.59−61093.39 )

¿ 12 %+ ( 17819.20
78912.59
)× ( 2 % )
¿ 20.86 %
 Internal rate of return for PROJECT Q
Assume: NPV=0 r1=12% r2=15%
60,000 88,000 65,000 32,000
¿ (−150,000 ) + + + +
( 1+ 0.12 ) ( 1+ 0.12 ) (1+ 0.12 ) ( 1+ 0.12 )4
1 2 3

¿ (−150,000 ) +53571.43+70153.06+ 46265.72+ 20336.58

¿ RM 40326.79

R1= 12% NPV1= RM 40326.79

60,000 88,000 65,000 32,000

¿ (−150,000 ) + + + +
( 1+ 0.15 ) ( 1+ 0.15 ) ( 1+0.15 ) ( 1+0.15 ) 4
1 2 3

¿ (−150,000 ) +52173.91+66540.64+ 42738.55+18296.10

¿ RM 29749.20

R2=15% NPV2= RM 29749.20

NPV 1
IRR=r 1+ X ( r 2−r 1 )
( NPV 1−NPV 2 )
40326.79
¿ 12 %+ x ( 15 %−12 % )
( 40326.79−29749.20 )

¿ 12 %+ ( 17819.20
78912.59
)× ( 3 % )
¿ 23.44 %

Internal rate of return PROJECT R

Assume: NPV= 0 r1= 12% r2= 16%
41,000 45,000 55,000 50,000
¿ (−180,000 ) + + + +
( 1+ 0.12 ) ( 1+ 0.12 ) (1+ 0.12 ) ( 1+ 0.12 )4
1 2 3

¿ (−180,000 ) +36607.14+ 35873.72+39147.91+31775.90

¿−RM 36595.33

R1= 12% NPV1= - RM 36595.33

 41,000 45,000 55,000 50,000
¿ (−180,000 ) + + + +
( 1+ 0.16 ) ( 1+0.16 ) ( 1+0.16 ) ( 1+ 0.16 )4
1 2 3

¿ (−180,000 ) +35344.83+33442.33+35236.17+27614.55
¿−RM 48362.12

R2= 16% NPV2= - RM 48362.12

NPV 1
IRR=r 1+ X ( r 2−r 1 )
( NPV 1−NPV 2 )
−36595.33
¿ 12 %+ x ( 16 %−12 % )
(−36595.33−(−48362.12) )

¿ 12 %+ ( −36595.33
11766.79 )
× ( 4 %)

¿ 0.44 %

Internal rate of return PROJECT S

Assume: NPV= 0 r1= 12% r2= 10%
59,000 60,000 60,000 60,000
¿ (−187,000 ) + + + +
( 1+ 0.12 ) ( 1+ 0.12 ) (1+ 0.12 ) ( 1+ 0.12 )4
1 2 3

¿ (−187,000 ) +52678.57+ 47831.63+42706.81+38131.08

¿−RM 5651.91

r R1= 12% NPV1= - RM 5651.91

59,000 60,000 60,000 60,000

¿ (−187,000 ) + + + +
( 1+ 0.1 )1 ( 1+ 0.1 )2 ( 1+ 0.1 )3 ( 1+ 0.1 )4
¿ (−187,000 ) +53636.36+ 49586.78+45078.89+ 40980.81
¿ RM 2282.84

R2= 10% NPV2= RM 2282.84

 NPV 1
IRR=r 1+ X ( r 2−r 1 )
( NPV 1−NPV 2 )
−5651.91
¿ 12 %+ x ( 10 %−12 % )
(−5651.91−2282.84 )

¿ 12 %+ ( −5651.91
−7934.75 )
× (−2 % )

¿ 10.58 %

Internal rate of return PROJECT T

Assume: NPV= 0 r1= 12% r2= 6%
35,000 49,000 58,000 67,000 39,000
¿ (−190,000 ) + + + + +
( 1+ 0.12 ) ( 1+ 0.12 ) (1+ 0.12 ) ( 1+ 0.12 ) ( 1+0.12 )5
1 2 3 4

¿ (−190,000 ) +31250.00+39062.50+ 41283.25+ 42579.71+22129.65

¿−RM 13694.89

R1= 12% NPV1= - RM

13694.89

35,000 49,000 58,000 67,000 39,000

¿ (−190,000 ) + + + + +
( 1+ 0.06 ) ( 1+0.06 ) ( 1+0.06 ) ( 1+ 0.06 ) (1+ 0.06 )5
1 2 3 4

¿ (−190,000 ) +33018. .87+43609.83+ 48697.92+ 53070.28+ 29143.07

¿ RM 17539.97

R2= 6% NPV2= - RM 17539.97

NPV 1
IRR=r 1+ X ( r 2−r 1 )
( NPV 1−NPV 2 )
−13694.89
¿ 12 %+ x ( 6 %−12 % )
(−13694.89−17539.97 )

¿ 12 %+ ( −13694.89
−31234.86 )
× (−6 % )

¿ 9.37 %
 Internal rate of return PROJECT U
Assume: NPV= 0 r1= 12% r2= 11%
36,000 77,000 80,000 55,000
¿ (−170,000 ) + + + +
( 1+ 0.12 ) ( 1+ 0.12 ) (1+ 0.12 ) ( 1+ 0.12 )6
1 2 3

¿ (−170,000 ) +32142.86+61383.93+56942.42+27864.71
¿ RM 8333.92

R1= 12% NPV1= - RM 8333.92

36,000 77,000 80,000 55,000

¿ (−170,000 ) + + + +
( 1+ 0.11 ) ( 1+ 0.11 ) (1+ 0.11 ) ( 1+ 0.11 )6
1 2 3

¿ (−170,000 ) +32432.43+62494.93+58495.31+29405.26
¿ RM 12827.93

R2= 11% NPV2= RM 12827.93

NPV 1
IRR=r 1+ X ( r 2−r 1 )
( NPV 1−NPV 2 )
−8333.92
¿ 12 %+ x ( 11 %−12% )
(−8333.92−12827.93 )

¿ 12 %+ ( −21161.85
−8333.92
) × (−1 %)
¿ 11.6 %
PART C
PROJECT P PROJECT Q
NPV = RM 61093.39 > 0 NPV = RM 29749.20 > 0
IRR = 20.86% IRR = 23.44%
Required Return = 12% Required Return = 12%
Accept the project because NPV Accept the project because NPV
value is positive. value is positive.
IRR value is higher than the value IRR value is higher than the value
of required return. of required return.

PROJECT R
NPV = - RM 48362.12 < 0
IRR = 0.44%
Required Return = 12%
Reject the project because NPV
value is negative.
IRR value is lower than the value of
required return.
PROJECT S
NPV = RM 2282.84 > 0
IRR = 10.58%
Required Return = 12%
Reject the project because although
NPV value is positive, IRR value is
lower than the value of required
return.

PROJECT T
NPV = - RM 17539.97 < 0
IRR = 9.37 %
Required Return = 12%
Reject the project because NPV
value is negative.
IRR value is lower than the value of
required return.
PROJECT U
NPV = RM 12827.93 > 0
IRR = 11.6 %
Required Return = 12%
Reject the project because although
NPV value is positive, IRR value is
lower than the value of required
return.
CONCLUSION:

 Project P and Project Q should be accepted as the all NPV value is positive and

greater than zero.

 The value of IRR is higher than the required rate of return (Cost of Capital Rate).

 Project S and Project U is rejected although NPV value is positive is because the

value of IRR is lower than the required rate of return (Cost of Capital Rate).