EQUIPMENT CHOICE CASE The National Commission of the Eurolandia Energy (CNE) will soon replace a used equipment. Following an international tender, it received two proposals for the two manufacturers, both technically acceptable. AB Company offers equipment worth 908,000 that should generate annual cash ow of 500,000 for 3 years. It is assumed that these ows of funds have been correctly calculated and are net of tax. However, the company AB needs to be paid in cash. XY Company offers equipment that is expected to generate annual cash ow for 3 years and net of taxes of 43 l ,000. Aware of the lower efciency of its equipment, KY Company offers staggered payments: 85,000 on delivery date and three annual installments of 371,000. 1) 2) 3) 4) 5) Assuming that the value of the equipment offered by the XY Company is 908,000, which proposal do you choose? Why? Assuming that the CNE has only 85,000 and that it must borrow the balance to nance the acquisition of either equipment, up to which interest rate could it borrow to nance the offer of AB Company so that the latter is as interesting as that of XY? Assuming that XY Company offers the CNE to negotiate the price of its equipment provided to be paid in cash, what should be the value of the offer for the internal rate of return (IRR) of the two proposals is equal? What would be the value of the offer if the required rate of return by the CNE is 15%? Of the two previously calculated values (questions 3 and 4) for the offering price of the KY Company, which should retain the CNE for its negotiation? Explain why and all the assumptions that underpin your reasoning