3. The management of New Industry Sdn Bhd is considering to purchase a new equipment. Its...

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3. The management of New Industry Sdn Bhd is considering to purchase a new equipment. Its choice is between Equipment A and Equipment B. Both equipments' have a five-year useful life. The initial cost (cash outlay) for Equipment A is RM160,000 and for Equipment B is RM220,000 and their respective scrap value at the end of year 5 are given as follows: Initial Investment Scrap Value Equipment A RM160,000 RM10,000 The cash inflows generated are as follows: Equipment B RM220,000 RM25,000 Year 1 Equipment A (RM) Equipment B (RM) 30,000 70,000 2 40,000 70,000 3 80,000 60,000 4 60,000 60,000 5 60,000 50,000 Required: (a) Calculate the payback period for EACH of the equipments. (b) If the cost of capital is 12%, i) What is the Net Present Value (NPV) for each of the equipments? ii) Which equipment or equipments should be accepted if they are independent? iii) Which equipment or equipments should be accepted if they are mutually exclusive? (d) The payback method of investment appraisal is the most popular method used in practice. However, it has several theoretical limitations. Discuss FOUR (4) limitations that it has. 4. You are a financial analyst for M & M Electronic Company. The director of capital budgeting has asked you to analyze two proposed capital investments. Project A and Project B. Each project has a cost of RM100,000 and the required rate of return for each project is 14 percent. The projects' expected net cash flows are as follows: Year 1 2 3 4 Expected Net Cash flows Project A Project B 65,000 35,000 30,000 35,000 30,000 35,000 10,000 35,000 (a) Calculate each project's payback period and net present value. (b) What is the difference between independent and mutually exclusive projects? Which project or projects should be accepted if they are: I) Independent? II) Mutually exclusive? 3. The management of New Industry Sdn Bhd is considering to purchase a new equipment. Its choice is between Equipment A and Equipment B. Both equipments' have a five-year useful life. The initial cost (cash outlay) for Equipment A is RM160,000 and for Equipment B is RM220,000 and their respective scrap value at the end of year 5 are given as follows: Initial Investment Scrap Value Equipment A RM160,000 RM10,000 The cash inflows generated are as follows: Equipment B RM220,000 RM25,000 Year 1 Equipment A (RM) Equipment B (RM) 30,000 70,000 2 40,000 70,000 3 80,000 60,000 4 60,000 60,000 5 60,000 50,000 Required: (a) Calculate the payback period for EACH of the equipments. (b) If the cost of capital is 12%, i) What is the Net Present Value (NPV) for each of the equipments? ii) Which equipment or equipments should be accepted if they are independent? iii) Which equipment or equipments should be accepted if they are mutually exclusive? (d) The payback method of investment appraisal is the most popular method used in practice. However, it has several theoretical limitations. Discuss FOUR (4) limitations that it has. 4. You are a financial analyst for M & M Electronic Company. The director of capital budgeting has asked you to analyze two proposed capital investments. Project A and Project B. Each project has a cost of RM100,000 and the required rate of return for each project is 14 percent. The projects' expected net cash flows are as follows: Year 1 2 3 4 Expected Net Cash flows Project A Project B 65,000 35,000 30,000 35,000 30,000 35,000 10,000 35,000 (a) Calculate each project's payback period and net present value. (b) What is the difference between independent and mutually exclusive projects? Which project or projects should be accepted if they are: I) Independent? II) Mutually exclusive?