Part 1 Sparta Impressions (SI), is a medium sized commercial printer of promotional advertising brochures, booklets and other direct mail pieces. The firm's major clients are Sydney and Auckland based advertising agencies. Recently, SI has not been able to compete effectively with larger printers because of its older inefficient presses. The firm is currently having problems meeting run-length requirements and quality standards cost efficiency. SI is considering replacing one of its printers with either of two printers - printer A or printer B. Printer A is a highly automated, computer-controlled printer; printer B is a less expensive printer that uses standard technology. To analyse these alternatives, Zion Williams, a financial analyst, prepared estimates of the initial investment and incremental (relevant) after tax net cash inflows associated with each printer. These are shown in the following table. Printer A Printer B Initial investment $660,000 $360,000 Year NCI NCI 1 $128,000 $88,000 2 182,000 120,000 3 166,000 96,000 4 168,000 86,000 5 450,000 207,000Note that Zion plans to amortise both printers over a ve-year period. At the end of that time, the printers would be sold, thus accounting for the large fth-year net cash inows. Zion believes that the two primers are equally risky and that acceptance of either of them will not challenge the firrn's overall risk. He therefore decides to apply the rms 13% cost of capital when evaluating the printers. S] requires all projects to have a maximum payback of four years. Required 1. Use the payback period to assess the acceptability and relative ranking of each printer. {2 marks) 2. Assuming equal risk, use the following sophisticated capital budgeting techniques to assess the acceptability and relative ranking of each printer: a. Net present value 13. internal rate of return {4 marks) 3. Summarise the preferences indicated by the techniques used in question 1 and 2. Do the projects have conicted rankings? {2 marks) 4. Draw a net present value profile for each printer on the same set of axes and discuss any conflict in rankings that may exist between NPV and IRR. Explain any observed conflict in terms of the relative differences in magnitude and timing of each projects cash flows. (3 marks) 5. Use your findings in questions 1 to 4 to prepare a brief note for management to indicate on both a theoretical (a) and practical (b) basis which printer would be preferred. Explain any differences in your recommendations