Net present value method, Identify which option of

Net present value method

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Reference no: EM132952162

Question: You are working as a finance manager for Fire Fox Transport Ltd. The company is considering to invest in one of the two following projects to buy a new equipment for their storage which is expected to boost the company's revenue. Each equipment will last 5 years and have no salvage value at the end. The company's required rate of return for all investment projects is 9.5%. The cash flows of the projects are provided below.

Equipment 1                          Equipment 2
Cost
$157,000                                    $182,000

Future Cash Flows
Year 1                            67 000       83 000
Year 2                            82 000               94 000
Year 3                          78 000               80 000
Year 4                            64 000               77 000
Year 5                           56 000                73 000

Required:

a) Identify which option of equipment should the company accept based on Net Present Value (NPV) method?

b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 3 years?

Reference no: EM132952162

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