Question 3 a) A company plans to purchase a new machine due to the expected demand for a new product. The machine costs Ghc185,000 and it is expected that the machine shall be used for five (5) years with a scrap value of Ghc15,000. The company expects the demand for the product to be as follows: Year 1 2 3 4 5 Demand (Units) 25,000 30,000 35,000 40,000 20,000 % Increase Selling Price 2% per year Variable Cost of production 3% per year Fixed production expenses 5% per year The companys cost of capital is 10% and pays corporate tax at a rate of 25% in the related year. Calculate the Net Present Value (NPV) of purchasing the new machine advice whether it makes economic sense to buy the new machine. (8 Marks) b) James believes that since capital markets are efficient, he doesnt need to read the financial press or be involved in stock research before purchasing stocks for 4 his portfolio. He simply throws darts at the stock pages and buys the stocks the darts hit. As a financial management student, analyse if stock research and analysis are important when buying and selling stocks in an efficient market. (6 Marks) c) Your friend took a finance class and learned about risk/return tradeoff. Wanting a high return, he invested in a risky, start- up Technology Company. A year later, the company went bankrupt and he lost his entire investment. He became furious with his finance lecturer for misleading him, claiming he was taught that higher return goes with higher risk. Explain how your friend misinterpreted the risk/return tradeoff concept. (6 Marks)