Question 1 Kenny Goh of Axis Sdn. Bhd. is considering two potential projects, Project A and Project B, for investment purpose. Project A is pertaining to the construction of a plant to manufacture...

(e) If the cost of capital increases to 15%, calculate the NPV of Project A and Project B. Explain why changes in the cost of capital can cause conflicting results using NPV and IRR methods.

Extracted text: Question 1 Kenny Goh of Axis Sdn. Bhd. is considering two potential projects, Project A and Project B, for investment purpose. Project A is pertaining to the construction of a plant to manufacture fertilizers and Project B is involved in the manufacturing of a new consumer product. The forecasted cash inflows and outflows of the two projects are given below: Project A (RM' million) Inflows Project B (RM' million) Year Outflows Inflows Outflows 1 200 150 80 60 200 160 120 80 3 200 160 150 100 4 180 150 200 140 The internal rate of return (IRR) of Project A and Project B are 24 percent per year and 20 percent per year respectively. Both projects require initial capital in year 0 and have a cost of capital of 5 percent per year.