SIDC Module 12 Risks and returns question: project's NPV and decision

SIDC Module 12Risks and returns

Kenari Bhd can invest RM1,000,000 today for cash inflows of RM300,000, RM400,000 and RM500,000 at the end of years 1 to 3. Its cost of capital is 10%. What is the project's NPV and decision?

A −RM21,037: reject
B RM978,963: accept
C RM90,909: accept
D RM200,000: accept

Show the answer and explanation

Answer: A. −RM21,037: reject

NPV = −1,000,000 + 300,000 ÷ 1.10 + 400,000 ÷ 1.10² + 500,000 ÷ 1.10³ = −1,000,000 + 272,727 + 330,579 + 375,657 = −RM21,037. A negative NPV at the cost of capital means the project earns less than investors require, so it is rejected. RM200,000 ignores the time value of money. RM90,909 discounts all inflows by one year only. RM978,963 is the present value of the inflows, forgetting to deduct the outlay. Source: SIDC Module 12 Study Outline (Jul-Dec 2026) Topic 5 Risks and Returns, 5.2 Capital Budgeting; Brealey, Myers and Allen, Principles of Corporate Finance, ch. on net present value (as at October 2026).

Common mistake

Adding up undiscounted cash flows, or quoting the PV of inflows as the NPV.

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Related SIDC Module 12 questions

For a project costing RM1,000,000 with inflows of RM300,000, RM400,000 and RM500,000 over three years, the IRR is about 8.9%. If the cost of capital is 10%, the IRR rule says A RM1,000,000 project returns RM300,000, RM400,000 and RM500,000 at the end of years 1, 2 and 3, earned evenly within each year. What is its simple payback period?Discounting the project's inflows of RM300,000, RM400,000 and RM500,000 (years 1 to 3) at 10% gives present values of RM272,727, RM330,579 and RM375,657. On a RM1,000,000 outlay, what is the discounted payback?

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Original study material mapped to the public SIDC Module 12 syllabus. Unofficial, not endorsed by SIDC or the SC. Verify figures and rules against current guidance before relying on them.