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A Company is considering which of two mutually exclusive projects to accept, each with a five year life. project a requires an initial expenditure of
A Company is considering which of two mutually exclusive projects to accept, each with a five year life. project a requires an initial expenditure of 2,300,000 and is forecast to generate annual cash flows before depreciation of 800,000. The equipment purchased at times zero has an estimated residual value after five years of 300,000. Project be cost 660,000 for equipment at the start. This has a residual value of 60,000 after five years. Cash inflows before depreciation of 250,000 per annum or anticipated. The company has a straight line depreciation policy and a cost of capital of 15% you can assume that the cash flows are equal to the profits before depreciation. Calculate
a) the net present value
b) what are the disadvantages of using ARR?
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