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CASE STUDY 1: MZ CORPORATION'S INVESTMENT DECISION MZ Corporation is a large machine shop, is considering replacing one of its technology with either of two new technologies - Technology A or Technology . Technology A is a highly automated, computer-controlled which allows MZ to increase the productivity significantly and generate higher cash flows as compared to Technology B. To analyze these alternatives, Jenny, a financial analyst, prepared estimates of the initial investment and incremental (relevant) cash inflows associated with each technology. These are shown in the following table. Jadual 1/ Table 1 + Initial investment (CFO) Year (1) 1 2 3 4 5 -NME LO Technology A Technology B $660,000 $360,000 Cash inflows (CFt) $128,000 $88,000 182,000 120,000 166,000 96,000 168,000 86,000 450,000 207,000 Note that Jenny plans to analyze both technology over a 5-year period. At the end of that time, the technologies would be sold, thus accounting for the large fifth-year cash inflows. Jenny believes that the two technologies are equally risky and that the acceptance of either of them will not change the firm's overall risk. She therefore decides to apply the firm's 13.0% cost of capital when analyzing the technologies. MZ Corporation requires all projects to have a maximum payback period of 4.0 years. Anda dikehendaki untuk: You are required to: a. Use the payback period to assess the acceptability and relative ranking of each technology (4 markah/ marks) b. Assuming equal risk, use the following sophisticated capital budgeting techniques to assess the acceptability and relative ranking of each technology: (1) Nilai kini bersih/ Net present value (NPV). (5 markah/marks) (2) Kadar pulangan dalaman/ Internal rate of return (IRR). (4 markah/marks) c. Summarize the preferences indicated by the techniques used in parts (a) and (b). Do theprojects have conflicting rankings? (4 markah/marks) d. Draw the net present value profiles for both projects 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 the magnitude and timing of each project's cash flows (5 markah/marks) e. Use your findings in parts (a) through (d) to indicate, on both (1) a theoretical basis and (2) a practical basis, which technology would be preferred. Explain any difference in recommendations. (3 markah/marks) =1