Angle Inc. is a production company with four investment opportunities available to its manager, Adam for the 2022 year. Below outlines these opportunities:

Project Investment Annual Earnings

Alpha $1,000,000 $200,000

Omega $2,000,000 $250,000

Theta $3,000,000 $350,000

Epsilon $500,000 $125,000

REQUIRED

A) Adam is currently evaluated based on his Return on Investment (ROI). (2 marks)

i) If the required rate of return is 15%, which projects would be accepted?

ii) If they can only choose one project, which would they choose?

B) Angle Inc. has decided to change its investment stategy to focus on Residual Income analysis. Which project should Adam choose under these new requirements if the company requires a minimum required return of 11%? (2 marks)

C) Donny, a manager in another investment centre, has presented Adam with a new 5 year project opportunity to replace one of the factory machines. The details of this investment are below:

Cost of new machine $150,000

Useful life of the new machine 5 years

Salvage value of the old machine $10,000

Salvage value of new machine $20,000

Additional information:

The new machine has an automation feature that will eliminate the need of one factory worker, saving $37,000 per year in salary.

Annual repairs would be required for the machine at a cost of $7,500 per year. The old machine did not require any maintenance costs.

Angle Inc. has a cost of capital for new projects of 13%.

Calculate the Net Present Value of this project. Should this new project be pursued? (6 marks)