QUESTION 1 Precision Manufacturing Sdn Bhd a large machine shop, is considering replacing one of its lathes with either of two new lathes-lathe A or lathe B. Lathe A is a highly automated, computer-controlled lathe; lathe B is a less expensive lathe that uses standard technology. To analyze these alternatives, Danial, a financial analyst, prepared estimates of the initial investment and incremental (relevant) cash inflows associated with each lathe. These are shown in the following table. Initial investment Year (1) 1 2 3 4 5 Lathe A Lathe B RM660,000 RM360,000 Cash inflows RM128.000 RM 88,000 182,000 120,000 166,000 96,000 168,000 86,000 450,000 207.000 Note that Danial plans to analyze both lathes over a 5-year period. At the end of that time, the lathes would be sold, thus accounting for the large fifth year cash inflows. Danial believes that the two lathes are equally risky and that the acceptance of either of them will not change the firm's overall risk. He therefore decides to apply the firm's 13% cost of capital when analyzing the lathes. Precision Manufacturing Sdn Bhd requires all projects to have a maximum payback period of 4 years. a) Use the payback period to assess the acceptability and relative ranking of each lathe. Which lathe would be preferred? Justify the answer b) Assuming equal risk, use the following capital budgeting techniques to assess the acceptability and relative ranking of each lathe: i) Net present value (NPV). Which lathe would be preferred? Justify the answer ii) Internal rate of return (IRR). Which lathe would be preferred? Justify the