a) A business owner has a choice of 2 investment projects. The initial cost of Project A is RM110,000 and that for Project B is RM95,000. Their estimated life is 4 years. Repair and maintenance costs are expected to average RM8,500 per annum for each project. Estimated revenue returns are as follows: Year Project A (RM) 30,000 30,000 35,000 Project B (RM) 25,000 1 2 3 35,000 40,000 30,000 4 55,000 Use the investment appraisal method of average rate of return to advise the owner on which project is a better investment b) Another business owner has a choice of another 2 investment projects. The estimated costs and returns of the 2 projects are as follows: 12% Project Y (RM) 150,000 3% DF DF Cost 1.0000 1.0000 Project X (RM) 180,000 60,000 40,000 50,000 50,000 0.8929 0.9709 50,000 -20,000 0.7972 Year 1 cash flow Year 2 cash flow Year 3 cash flow Year 4 cash flow 0.9426 0.9151 70,000 70,000 0.7118 0.6355 0.8885 i. ii. Calculate the payback period for each of the project and then advise the owner on which project is a better investment. Using a discount factor of 12%, calculate the Net Present Value for each project and then advice the owner on which project is a better investment. Using the project as advised in part (ii), find the NPV of that project at 3% discount factor and then determine the IRR of that project. iii.

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