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(a) Why is the capital budgeting decision crucial and important for a firm? State why the capital budgeting errors are so costly?

(b) Suntex Berhad is considering a major expansion of its production line and has estimated the following free cash flows associated with such an expansion. The initial outlay associated with the expansion would be $ 1,950,000 and the project would generate free cash flow of $ 450,000 per year for six years. The appropriate required rate of return is 9%. Answer the followings:

i) Calculate the net present value?

ii) Calculate the profitability index?

iii) Calculate the internal rate of return?

iv) Should this project be accepted?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91585397

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