Based on the Weighted Average Cost of Capital calculated in question 4, United Corp. decides to use a rounded minimum required return of 12%; which it has decided to use for the following capital budgeting evaluation scenario:

The company is considering whether to purchase the Basic or Premium version of the AR5 machine, a key piece of equipment that is expected to improve efficiency of daily operations.

You have been tasked with evaluating the quantitative aspects of the projects, which are mutually exclusive. The projected cash flows of both projects are as follows:

Years	Project
	Basic AR5	Premium AR5
0	(5,000,000)	(7,500,000)
1	1,000,000	2,500,000
2	1,500,000	2,500,000
3	2,000,000	2,500,000
4	2,250,000	2,500,000

As noted above, the company has a required rate of return of 12%. The following PV factors are provided:

Year	PV Factor (12%)
1	0.8929
2	0.7972
3	0.7118
4	0.6355

Required:

1. Evaluate the projects using each of the following criteria, stating which project(s) United Corp.

should choose under each criteria and why:

i. Payback (4 Marks) ii. Discounted Payback (8 Marks) iii. Net Present Value (4 Marks) iv. Profitability Index (3 Marks)

2. Compute the Internal Rate of Return (IRR) for the Premium AR5 machine only, given that it falls between 12% and 13%. The PV Factors for 13% are provided below: (6 Marks)

Year	PV Factor (13%)
1	0.8850
2	0.7831
3	0.6931
4	0.6133

CASE ANALYSIS - UNITED CORPORATION LIMITED 140 MARKS The following comprehensive assessment is based on a continuing case study of United Corporation Limited. The following financial statements have been provided: United Corporation Limited Income Statement For the years ended December 31, 2018 & 2019 2018 2019 ('000s) ('000s) Sales 750,000 937.500 Cost of Sales (250,000) (255,500) Selling & Marketing Costs (125,000) (130,000) Admin. Expenses (45,000) (47,500) Depreciation Expense (15,000) (17.500) Earnings before Interest & Taxes 315.000 487.000 Interest Expense (2,500) (2.500) Taxable income 312,500 484,500 Taxation (35%) (109.3751 (169,575) Net Income 203 125 314,925 Dividends (40%) 81,250 125,970 Addition to Retained Earnings 121,875 188,955 Additional Information: Ordinary Share Price 17.50 22.75 Ordinary Shares Outstanding ('000) 100,000 120,000 United Corporation Limited Statement of Financial Position As at December 31, 2018 & 2019 2018 2019 2018 2019 ("000s) ('000) ('000) {"000s) ASSETS LIABILITIES & EQUITY Current Assets Current Liabilities Inventories 220,000 230,000 Accounts Payables 115,000 95,000 Accounts Receivables 245,000 275,000 Notes Payables 125,750 110,545 Cash & Equivalents 175,750 225,000 240,750 205,545 640,750 730,000 Non-current Liabilites 100.000 75,000 Non Current Assets, Net 525,500 575,000 Total Liabilities 340,750 280,545 Equity Common Stock Retained Earnings Total Equity TOTAL LIAB. & EQUITY 220,000 605 500 825,500 230,000 794 455 1,024,455 TOTAL ASSETS 1,166,250 1,305,000 1,166,250 1,305,000