A company is considering two alternative investment proposals, A and B, which are tabulated over the page:

A £
Β
£
Initial investment 15,000 28,000 Net profit year 1 5,000 4,000 2 7,000 5,000 3 4,000 10,000 4 3,000 12,000 5 2,000 8,000 6 2,000 4,000 Depreciation 10% of original 25% diminishing cost balance Scrap value in year 6 £3,000 £6,000 First-year allowance 60% 60%
WDA 25% 25%
Corporation tax 50% 50%
The company's cost of capital is 10%

Required:
Advise management which project they should select.

Transcribed Image Text:

A BI Initial investment 15,000 28,000 Net profit year 1 5,000 4,000 2 7,000 5,000 3 4,000 10,000 4 3,000 12,000 5 2,000 8,000 6 2,000 4,000 Depreciation 10% of original 25% diminishing cost balance Scrap value in year 6 3,000 6,000 First-year allowance 60% 60% WDA 25% 25% Corporation tax 50% 50% The company's cost of capital is 10%