Stanley Daniels
01/23/2023 · Middle School

5. Polaris Engineering Sdn. Bhd is considering a RM250,000 investment in two projects. It is expected that Project Solar will return RM60,000 at the end of each year for the next 5 years. On the other hand, it is expected that Project Hydro will return nothing for the next 2 years but RM100,000 at the end of year 3,4 and 5. Which project should be chosen if the cost of capital is \( 7 \% \) compounded semiannually for Project Solar and \( 4 \% \), compounded quarterly for Project Hydro.

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Project Hydro should be chosen as it has a higher present value of cash flows compared to Project Solar.

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