QUESTION 3 [25 MARKS] Pacific Ltd is considering the acquisition of new equipment. The directors of the company have gathered several information about two models of equipment namely equipment Technico and equipment Benito. The following data are available: Technico Benito $500 000 Initial Cost $400 000 Estimated lifetime 5 yrs Estimated residual value at the end of lifetime $200 000 5 yrs $350 000 The estimated cash inflows and cash outflows are provided below: Year Cash Inflows ($) 1 2 Technico 175 000 195 000 100 000 150 000 160 000 Benito 185 000 205 000 145 000 160 000 180 000 Cash Outflows ($) (exclude depreciation) Technico Benito 45 000 50 000 50 000 55 000 55 000 65 000 65 000 60 000 60 000 70 000 3 4 5 The company's cost of capital is 10%. The following present values of $1 are given. Year 10% 1 2 3 4 5 0.909 0.826 0.751 0.683 0.621 REQUIRED (a) Calculate for both equipments: (1) The Payback Period [6 marks] (i) The Net Present Value (b) In relation to investment appraisal explain the concept of time value of money to a non-financial people [4 marks] (c) State which equipment should be purchased. Justify your answer [4 marks] (d) Calculate ARR of your chosen equipment [5 marks]