SIDC Module 12 Risks and returns question: Discounting the project's inflows of RM300,000

SIDC Module 12Risks and returns

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?

A 3.0 years: recovered exactly at the end
B 2.8 years: recovered during year 3
C Over 3 years: not recovered within its life
D 2.6 years: recovered during year 3

Show the answer and explanation

Answer: C. Over 3 years: not recovered within its life

Cumulative present values are 272,727, then 603,306, then 978,963 after year 3, still RM21,037 short of the RM1,000,000 outlay. The discounted payback therefore lies beyond the project's life, which matches the negative NPV. 2.6 years is the simple (undiscounted) payback. 2.8 years mixes discounted figures for years 1 and 2 with an undiscounted year 3. 3.0 years would require cumulative PV to reach exactly RM1,000,000. 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 (as at October 2026).

Common mistake

Reporting the simple payback when the question asks for the discounted one.

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Related SIDC Module 12 questions

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?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?

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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.