AAA Associates is a construction company. It has acquired an impressive market share since it is into the business. However, there are certain financial decisions that AAA needs to take and has hired you as a financial consultant. Below is the relevant information of AAA that you will require to do the analysis.

(in millions) Quick Ratio 4X Current ratio 6X Fixed assets 408.5 Sales 1125 Cash and marketable securities 225 Net Income 175 Common shares outstanding 20 Dividends paid 11.2 DSO (based on 360 days) 53 days ROE 15% depreciation 3.5 Days used 360

QUESTION NO. 3 (10 MARKS) Furthermore, AAA is considering to replace three of its used and worn out machines, with better and ecofriendly options. The finance manager has given them the following working on after tax incremental operating cash flows proposed as below. Based on these, you are required to calculate the a) NPV for the project, considering the required Rate of return to be 16%. b) Also calculate the payback and discounted payback of the project. c) What is the profitability index and internal rate of return for the project. d) Comment on the feasibility of the project on the basis of above calculations. Should AAA opt for the replacement or not? MAKE SURE TO SHOW ALL WORKING OF THE SOLUTION. Expected Cashflows for the new machine: 0 1 2 3 4 5 6 7 8 -404,424 ($86,890) ($106,474) $91,612 $84,801 $84,801 $75,400 $66,000 $92,400

NPV ? Payback ? Discounted Payback ? Profitability Index ? IRR ? Decision

Opt/not opt

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