3rd sem International finance.docx - INSTRUCTIONS: TIME: 3...

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INSTRUCTIONS:TIME:3 HOURSInternational Financing (3Rd Semester) (Finance &Banking Specialization Subject)INSTRUCTIONS:TIME:3 HOURSSECTION A(30 MARKS)There is only ONE (1) Question in this section. Answer all the Question in the answerBooklet.QUESTION 1(30 MARKS)A company is considering whether topurchasea new machine. Machines A and Bare available for \$80,000 each. Earnings after taxation are as follows:YearMachineAMachineB\$\$124,0008,000232,00024,000340,00032,000424,00048,000516,00032,000Required: Evaluate the two alternatives using the following: (a) payback method,(b)rate of returnon investment method, and (c) net present value method. You should useadiscount rateof 10%. (10+10+10)
Solution
5.62116,0009,93632,00019,8721,36,0001,04,6161,44,0001,03,784Net Present Value = Present Value – InvestmentNet Present Value of Machine A: \$1,04,616 – \$80,000 = \$24,616Net Present Value of Machine B: \$1,03,784 – 80,000 = \$23,784According to the net present value (NPV) method, Machine A is preferred because its NPV isgreater than that of Machine B.SECTION BThere are only THREE (3) Questions in this section. Answer all the Questions in the answerBooklet. (15*3=45)

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Term
Winter
Professor
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