(a) Zebra Corporation is considering an investment that will cost RM80,000 and have a useful life of 4 years. During the first 2 years, the net incremental after-tax cash flows are RM25,000 per year and for the last two years they are RM20,000 per year. Calculate the payback period for this investment.

(b) Monica and Rachel are discussing about IRR and NPV as a decision model for Monicas new restaurant. Monica wants to use IRR because it gives a very simple and intuitive answer. Rachel states that there can be errors made with IRR that are not made with NPV. Differentiate the types of error can be made with IRR and not with NPV and comment Rachel opinion.

(c) Last year RR Corporation had RM7.3million in operating income (EBIT). Its depreciation expense was RM1.5million, its interest expense was RM1.8million, and its corporate tax rate was 40%. At year-end, it had RM16.5 million in current assets, RM3.2million in accounts payable, RM1.9million in accruals, RM2.5million in notes payable, and RM16.1million in net plant and equipment. RR uses only debt and common equity to fund its operations. RR has no preferred stock on its balance sheet and other current liabilities. Assume that Rattners only noncash item was depreciation. Calculate;

(i) The companys net income. (ii) Net operating working capital (NOWC) (iii) Net working capital (NWC) (iv) Free cash flow (FCF) for the year that just ended where RR had RM13.6 million in net plant and equipment the prior year. Its net operating working capital has remained constant over time.