3a. How does the production cycle affect the working capital of a company?

3b. What do you mean by floatation cost?

3c. Despite the companies are going concerns, why they use the optimal renewal time and the option to abandon investment appraisal.

4. Capital expenditure of a new investment project is $ 120,000,000; the expected annual net cash flows generated from the investment are given below. Suppose that the companys cost of capital is 10%, calculate and comment on the accounting rate of return, internal rate of return, and discounted payback period of the project.

Years Cash flows($000) DF (10%)

1 40,000 0.909

2 42,000 0.826

3 50,000 0.751

4 52,000 0.683

5 55,000 0.621

SV 60,000 0.565