(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?