3. Capital Budgeting Projects

The Management of Agri-Mach Enterprises are evaluating two new robotic systems of equal risk, to use in its production line. The companys cost of capital is 12%. The costs and the cash flows for these systems are shown below.

System 1

System 2

Initial Investment

Year

$800,000 $500,000

Cash inflows

1 $150,000 2 200,000 3 250,000 4 30,000 5 35,000

$150,000 $150,000 $150,000 $150,000 $150,000

Required:

a) Calculate each systems Payback Period.

b) Calculate the Net Present Value (NPV) for each system.

c) Indicate which system you would recommend, substantiating your reasons.

4. Bond Issue (5 of 20 marks)

In order to fund the new robotic systems, the company is considering issuing a 5 year bond, with a face value of $1000 and a coupon rate of 11%, the interest rate for similar bonds is currently 9%.

Required:

Calculate the current market price of the 5 year bond, assuming annual payments.

please show all calculation

dont do in ms excel pls