A). Amazing Ltd. is a popular caf chain in Sydney. The management is considering the following two mutually exclusive projects available:

Year

Project Mocha ($)

Project Latte ($)

0

-50,000

-65,000

1

24,000

22,000

2

24,000

21,000

3

17,000

30,000

4

11,000

37,000

5

20,000

24,000

(i) What is the crossover rate? (1 MARK)

(ii) What is the NPV for these two projects at crossover rate? (1 MARK)

(iii)Which project is better if the required return is above crossover rate? Why? (1 MARK)

(Round your answer to at least 2 decimal points.)

B). EXCEL, an equipment costing $100,000 has a useful life of 6 years. It has a resale value of $8,000. Annual costs will be $7,000 for each of the year. Another equipment, APLUS costing $120,000 has a useful life of eight years, after which time its estimated resale value will be $25,000. Annual costs will be $5,000 for the first three years and then $8,000 for each of the next five years. Compute the annual equivalent cost for each equipment using a discount rate of 10%. Which equipment will be your choice and why? Round your answers to 2 decimal points. (3 MARKS)