FreST Water Solutions Pty Lty is considering investing in a new testing device. It has two options: Option A would have initial lower cost but would require a significant expenditure for rebuilding after 4 years. Since the option B machine is of initial higher quality, it is expected to have a residual value at the end of its useful life. The following estimates were provided:

	Option A	Option B
Initial cost	$90,000	$215,000
Annual cash inflows	$180,000	$140,000
Annual cash outflows	$160,000	$108,000
Cost to rebuild (end of year 4)	$18,000	0
Residual value	0	$42,000
Estimated useful life	8 years	10 years

The Cost of capital is 9%

Required:

a) Describe five (5) common investment factors that must be taken into consideration for any investment decision making activity (5 marks)

b) Calculate the net present value (NPV) for each option. SHOW ALL WORKINGS CLEARLY (6 marks)

For option B only:

c) Calculate the average profit (1 mark)

d) Calculate the average investment (1 mark)

e) Assuming the average profit is $150,000 and the average investment is $300,000. Calculate the The Return on Average Investment (RAI or ARR) (1 mark)

f) The net cash-flow for year 7 only is (1 mark)