ABC Corp. is considering investing in a new diagnostic equipment. It has two options: Option A would have a lower initial cost but would require an overhaul after 3 years. Option B would not require an overhaul but would be more expensive. The following estimates were made of cash flows. The company's cost of capital is 6%. Option A Option B Initial cost $100,000 $175,000 Annual cash inflows 40,000 50,000 Annual cash outflows 15,000 15,000 Cost to rebuild (end of yr. 3) 25,000 Salvage value Estimated useful life 7 yearsANZ 7 years PL Instructions 1. Compute the net present value 2. Which option should you accept? Question 1. Tiger Corporation is considering a two long-term capital investment proposal. Each investment has a useful life of 4 years. Relevant data on each project are as follows Project A Project B $ 40,000 $ 50,000 Capital Investment Annual net income: Year 1 Year 2 Year 3 Year 4 $20,000 12,000 11,000 8.000 $25,000 15,000 20.000 6.000 $51,000 $66,000 Total Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 5%. Instructions 1. Compute the cash payback period for each project 2. Compute the net present value for each project. 3. Compute the annual rate of return for each project. 4. Compute the profitability index for each project. 5. Which project if any do you recommend and why