a. A project will produce an annual operating cash flow of $55,000 for four years. During the life of the project, inventory will be lowered by $35,000 and accounts receivable will increase by $12,000. Accounts payable will decrease by $13,000. The project requires the purchase of equipment at an initial cost of $145,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a $24,000 after-tax cash flow. At the end of the project, net working capital will return to its normal level. What is the net present value of this project given a required rate of return of 15%?

(13 marks)

b.Apricot company is a listed company in Hong Kong. You just join the company as a financial analyst. The company is granting a certain amount of company shares of Apricot to Chief Executive Officer and Chief Financial Officer as an incentive in the managerial compensation. On Monday, the Chief Financial Officer of the company says "Why do we need to concern about whether the market is efficient or not? Also, I know there are three forms of market efficiency. How does these forms of market efficiency affect the company and our decision making as financial manager?" How would you respond to Chief Financial Officer? Illustrate your answer with example(s).

(12 marks)