(a) J&J Berhad projects unit sales for a new squash racket as follows:

(50 marks)

Year 1 2 3

Unit Sales 2,500 2,000 1,500

The estimated selling price of the new squash racket is RM450 per unit. The variable costs are RM200 per unit while the fixed costs are RM300,000 per year. The project requires an initial investment of RM420,000 in assets and it will be depreciated using the straight-line method over 3 years. In Year 3, these assets can be sold for 20 percent of its acquisition cost.

Production of the squash rackets will require investment in net working capital every year. The net working capital requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 25 percent, and the required rate of return is 15 percent.

Required:

1. (i) Compute the net cash flows for this project for Year 0 to Year 3.

2. (ii) Calculate the net present value for this project.

3. (iii) Should J&J Berhad invest in this project? Why?

(24 marks)

(5 marks)

(2 marks)

2. (b) Bondholders/Debtholders help in business creation. Analyse the components which could possibly affect the investment strategies among Bondholders/Debtholders. Relevant examples or illustrations should be given.

   (10 marks)

3. (c) Explain the differences between common and preferred stocks. Relevant examples or illustrations should be given.

   (9 marks)