Question

Calculate the following project, at cost of capital of 10%

Years	Cash Flow (RM)
0	-10,000
1	2000
2	2000
3	4000
4	4000
5	5000

i) calculate NPV (8marks)

ii) calculate PI

iii) Justified should we accept or reject the project?

Answer 1

	Year	Cash flow	PVIF at 10%	PV at 10%
	0	$          (10,000)	1	$          (10,000)
	1	$              2,000	0.90909	$               1,818
	2	$              2,000	0.82645	$               1,653
	3	$              4,000	0.75131	$               3,005
	4	$              4,000	0.68301	$               2,732
	5	$              5,000	0.62092	$               3,105
				$               2,313
i]	NPV =	$              2,313
ii]	PI = 12313/10000 =	1.23
iii]	The project can be accepted as the NPV is positive.
	AS NPV is positive, PI>1. All projects with PI>1 can be accepted.