Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Esch equipment will last 5 years and have no salvage value at the end. The company's required rate of retum for all investment projects is 89%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $186,000 $195,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 86 000 93 000 83 000 75 000 55 000 97 000 84 000 86 000 75 000 63 000 Required: a) Identify which option of equipment should the company accept based on Profitability Inde * b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Esch equipment will last 5 years and have no salvage value at the end. The company's required rate of retum for all investment projects is 89%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $186,000 $195,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 86 000 93 000 83 000 75 000 55 000 97 000 84 000 86 000 75 000 63 000 Required: a) Identify which option of equipment should the company accept based on Profitability Inde * b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 2P
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