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Project 1 Project 2 Initial Outlay (10) $12,000,000 $16,000,000 Annual Cash Flows (CF) $3,200,000 $5,150,000 Life of system 7 years 5 years Notes: 1) All cash flows are after tax and depreciation. 2) A discount rate of 13% is estimated as the risk in both of these projects.

Project 1 Project 2 Initial Outlay (10) $12,000,000 $16,000,000 Annual Cash Flows (CF) $3,200,000 $5,150,000 Life of system 7 years 5 years Notes: 1) All cash flows are after tax and depreciation. 2) A discount rate of 13% is estimated as the risk in both of these projects.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 4BE: Internal rate of return A project is estimated to cost 463,565 and provide annual net cash flows of...
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  1. Your client is investigating two start-up companies that operate in the same construction sector in Australia. These two companies are investigating similar projects (not both) in which they will invest. However, your client is not sure which is better and has sent the relevant details to you to advise. The characteristics of the two projects are given below:

(picture)

Your client wishes you to provide detailed calculations indicating which project you believe to be the best. The client will then decide whether to invest into the company looking to invest in the project

Project 1 $12,000,000 Project 2 $16,000,000 Initial Outlay (10) Annual Cash Flows (CF) $3,200,000 $5,150,000 Life of system 7 years 5 years Notes: 1) All cash flows are after tax and depreciation. 2) A discount rate of 13% is estimated as the risk in both of these projects.
Transcribed Image Text:Project 1 $12,000,000 Project 2 $16,000,000 Initial Outlay (10) Annual Cash Flows (CF) $3,200,000 $5,150,000 Life of system 7 years 5 years Notes: 1) All cash flows are after tax and depreciation. 2) A discount rate of 13% is estimated as the risk in both of these projects.
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