3. Adapted from CIMA Warung Co. is considering three mutually-exclusive investment projects A, B and C. The following information has been prepared by Warung Co.s investment manager.

Required: (a) Plot a graph showing the sensitivity of the three investments to changes in Warung Co.s cost of capital. (b) How would you advise Warung Co.s managing director with respect to the three mutually-exclusive investment projects? (c) Looking at the contradictory rankings between NPV and IRR, Warung Co.s managing director told you that she is contemplating using payback period to assess the investments. Give the managing director your thoughts on the use of payback period.

Investment A (S) Investment B (S) Investment C (S) 245,000 Initial Investment Cash inflow for A: Years 1 to 3 Cash inflow for B: Years 1 to 6 Cash inflow for C: Years 1 to 9 NPV at 10% each year Rankin IRR Ranking 105,000 48,000 187,000 48,000 48,000 31,432 1st 13% 3rd 14,376 22,040 2nd 14% 17.5%