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50,000 5. State the decision rule used to accept or reject an investment proposal under each of these methods of analysis: (a) net present value method (b) internal-rate-of-retum method 6. years to a zero disposal value. The relevant details for the project over its 3-year life are shown below Calculate the accounting rate of return for the project. Year 1 Year 2 Year 3 Sales RM220,000 RM190.000 RM200,000 Cash expenses 40,000 60,000 Depreciation 90,000 90,000 90,000 Earnings before taxes 80,000 60,000 50,000 Taxes @ 30% 24,000 18,000 15,000 Operating income after taxes 56,000 42,000 35,000 7. Fullerton Ltd, invested RM400 million in new industrial equipment. The present value of the future after-tax cash flows resulting from the equipment is RM800 million. Fullerton currently has 250 milion shares of common stock outstanding, with a current market price of RM32 per share. Assuming that this project is new information and is independent of other expectations about the company, what is the theoretical effect of the new equipment on Fullerton's stock price? 8. Madden Ltd is a producer of dairy products. The company needs to replace its equipment. The current equipment was purchased 18 years ago at a cost of RM2 million, and it was amortized over a 20-year period using the straight-line method, assuming no expected residual value. Management believes that currently, the equipment could be sold for RM150,000. The new equipment would cost RM2.85 million and have an expected residual value of RM525,000 a the end of its estimated life of 10 years. With the new equipment, the current operating costs of RM1.5 million would decrease by 30% in year 1, remain at that level for year 2 and 3. decrease by another 10% in year 4, and remain at that level for the remaining life of the asset. With the new equipment, the company would have to hire another operator at an annual cost of RM30,000. The company's cost of capital is 12% (a) Assuming that the company decides to buy the new equipment now, calculate the initial investment (b) Calculate the total net savings in operating costs over the expected life of the new equipment ce Calculate the net net present value of investing in the new equipment. 19) If the rnaximum acceptable payback period for the company is 8 years, should the company replace the equipment now? Explain your rationale with supporting calculations

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