Question $4(25$ marks$)$

$($a$)$ Project A and Project $B$ are mutually exclusive altornatives $($MEA$).$ The useful life o

the two projects is $3$ years. Below is the information of these projects. The M$^$RR is $10\%$

$($i$)$ Bused on what you have learnt in this subject, stote the three major characteristics of ordinary

an$$uity$.(3$ marks$)$

$($ii$)$ Explain whether the annual revonue of Project B are considered as ondinary annuity. $(2$ marks$)$

$10$

$10$

$($iii$)$ "Basod on the Information s$/$own in the given rable, only projoct $A$ is oconomically justified

and worth$-$investing in the absurnce of capilal rationing".

Explain whether the statoment is true or fulse.

$($iv$)$ Assume there is now capital rationing. Under incremental investment analysis using the IRR

method, explain which project is the base alternative.

$($v$)$ Fill in the table below for conducting the inoremental investment analysis using the IRR

method. $(3$ marks$)$

$($vi$)$ The IRR for both $($Project B $-$ Project ${?}^{{?}^{?}})$ and $($Project A $-$ Project B$)$ is $15\%.$ Explain which

project be choose based on the incremental analysis using IRR method. $(3$ marks$)$

$($vii$)$ Use the Prescnt Worth $($PW$)$ method to verify your choice in part $($vi$).$ Show all the steps of

calculation.

$PW(in$ yoar $0)of$ Project $B$

Based on the PW method, Project

should be chosen because

The choices under the PW method and the incremental analysis using IRR method should be

consistent $/$ inconsistent $($pleaso circle the correct answer$).$