Part 11 Flamingo Inn has outsourced its laundry service to a contract cleaning company at an annual cost of $360,000. Now, due to escalating costs, Flamingo is considering performing the service itself by purchasing new washers dryers, and presses at a total cost of 500,000 Compared to outsorcing the Financial Controller expects average cash savings of S150,000 per year. The machines are expected to last for 5 years with no residual value. The desired rate of return is 10% for this project Present Value of an Annuity Si per Period 09091 2 1.7355 3 2.4869 3.1699 3.7903 4.3553 7 4.8684 53349 3.7590 To evaluate whether to undertake any capital budgeting project proposal the company only carry out those projects that can get back its investment capital within 2 years 13 Page 3 of Question Al continued Required: (a) Compute the payback period for the project and explain (wahin 10 words) whether it is acceptable or not (3 marks) (b) Compute the NPV of the project and explain (within 10 words) whether the project is acceptable or not (3 marks) (c) Consider the following scenarios separately by using NPV analyser Suppose the machines can only last for 4 years. Is this project acceptable and why (wahin 10 words (3 marks) Suppose due to environmental health regulations Flamingo has to spend an additional 510,000 cash to dispose all machines at the end of the year fire is this project acceptable and why (Within 10 words)? (marks) (i) Based on an expected machines useful life of 5 years, what is the minimum annual cash savings required in order to justify the investment of this project? (d) In making capital budgeting decisions why do we focus on cash flows rather than accounting profits? (within 30 words) (4 marks)