(13 marks) Question B1 (A) Opera Incorporated is considering a new project with the following cash flows: Year 0 2 3 4 Cash Flows ($) -42,000 10,400 11,600 14,500 19,000 5 24,000 The project has a required return of 18 percent. For project such as this, the company will generally favour the payback rule where the company will accept a project if the payback associated with the project is less than three years. i) Should the company accept this project under the payback rule? (3 marks) ii) Comment on the investment decision in (i). (5marks) 0 (B) Elma Corporation is trying to choose between two mutually exclusive projects. Project A has a 5 year expected life while project B has a 3 year expected life. The cash flows of both projects are as follow: Year Project A ($) Project B ($) - 150,000 -78,000 1 41,000 43,000 46,000 38,000 3 48,000 31,000 4 62,000 5 55,000 Assume that both projects can be repeated and that there are no anticipated changes in the cash flows. Elma Corporation required a return of 17 percent for both investments. What should be the company's investment decision? (5 marks) 2