Instructions: Do BOTH questions from this section Capital Appraisal: 1. The Rolla Construction Company specializes in developing large shopping centres. The company is considering the purchase of a new earth-moving machine and has gathered the following information: Purchase Price $600,000 $100,000 Residual Value Desired payback period Minimum rate of return 3 years 1594 4 The cash flow estimates are as follows: Year Cash Inflows Cash Outflows Net Cash Inflows Projected Net Income 1 $500,000 $260,000 $240,000 $115,000 2 450,000 240,000 210,000 85,000 3 400,000 220,000 180,000 55,000 350,000 200,000 150,000 25,000 Totals 1,700,000 920,000 780,000 280,000 (PVIFA & PVIF Tables are attached) Required: a) Analyze the Rolla Construction Company's investment in the new carth-moving machine. In your analysis, use i. the net present value method, (12 Marks) ii. the payback period method. (7 Marks) b) Determine the internal rate of return. (16 Marks) c) Summarize your findings from 1 above, and recommend a course of action. (5 Marks) Total (40 Marks)