SECTION A: MINI CASE Answer ALL questions Liza and her friend are considering which projects should be invested. The first project is a restaurant, and the second project is a business to sell medical equipment. The projected cash flow of the restaurant and the medical equipment business are as below: Project Cost Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Restaurant Medical Equipment Business (50,000) 20,000 25,000 30,000 30,000 30,000 17,500 (75,000) 40,000 40,000 40,000 40,000 26,000 32,000 If the appropriate discount rate for the restaurant is 13% and the medical equipment business is 8%, help Liza and her friend answer the following questions. QUESTION 1 a) Compute the payback period and discounted payback period for each project. (5 marks) b) Critically discuss the payback and discounted payback methods. Does the decision change due to the discount rate? Why and why not? (10 marks) [Total = 15 marks] QUESTION 2 a) Compute the net present value (NPV) for each project. (5 marks) b) Is it better to get the same amount of cash flow earlier or later? Critically discuss the NPV method by using the current case study to support your discussions. (15 marks) [Total = 20 Marks] QUESTION 3 a) Compute the internal rate of return (IRR) for each project. Why project should be accepted? (5 marks) b) Critically discuss IRR, why are finance managers using it in the decision-making process? What are the disadvantages of IRR? (10 marks) [Total = 15 Marks] [Total Section A marks = 50] Page 4 of 5