What are the two (2) advantages of Payback Period?

(4 marks) b) Amaryllis Incorporated is attempting to evaluate the feasibility of investing RM95,000 in a piece of equipment that has a 5-year life. The firm has estimated cash inflows associated with the proposal as shown in the following table. The firm has a 12% cost of capital.

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BFN1024 PRINCIPLES OF FINANCE 5 TH JUNE 2020

ZS 2/7

Year (t) Cash Inflows (CFt) RM 1 20,000 2 25,000 3 30,000 4 35,000 5 40,000

i. Calculate the payback period for the proposed investment.

(4 marks)

ii. Calculate the net present value (NPV) for the proposed investment.

(5 marks)

iii. Calculate the profitability index (PI) for the proposed investment.

(4 marks)

c) Define cash conversion cycle and operating cash cycle.

(4 marks) d) Tenaga Berhad wishes to evaluate its cash conversion cycle (CCC). Research done by one of the firms financial analysts indicates that on average the firm holds items in inventory for 55 days, pays its suppliers 35 days after purchase, and collects its receivables after 45 days. The firms annual sales (all on credit) are about RM1.5 billion, its cost of goods sold represent about 60 percent of sales, and purchases represent about 40 percent of cost of goods sold. Assume a 365-day year. Calculate Tenaga Berhads operating cycle (OC) and cash conversion cycle (CCC).