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Excellence Company Limited is considering two mutually exclusive proposals to improve efficiency at its customer call centre. Proposal A requires an initial investment of $40,000,
Excellence Company Limited is considering two mutually exclusive proposals to improve efficiency at its customer call centre. Proposal A requires an initial investment of $40,000, and has an expected life of 6 years. Annual expenses are estimated to be $5,000. Proposal B requires an initial investment of $48,000, and has an expected life of 4 years. Annual expenses are estimated to be $3,000. For each of the two proposals, no salvage value is expected at the end of the proposal's life. (4 marks) i) Explain what the repeatability assumption involves. ii) Assuming repeatability and a study period of 12 years, advise which proposal should be accepted if Excellence's minimum attractive rate of return (MARR) is 10% per year. Use either the net present value method or the annual worth method. (10 marks)
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