Question
INANCE MGT102 CASE #2 DUE DECEMBER 10th 1. The Best Company had to decide between two possible pieces of operating equipment with different cash flows.
INANCE MGT102
CASE #2
DUE DECEMBER 10th
1.
The Best Company had to decide between two possible pieces of operating equipment
with different cash flows. Provide analysis through the use of NPV to assist the company
as to which piece of operating equipment they should choose. (10 marks)
Operating Equipment A:
Cost of Capital: 8%
Time
0
1
2
3
4
Cash Flow
-12,000
1,500
2,500
3,000
8,000
Operating Equipment B:
Cost of Capital: 8%
Time
0
1
2
3
4
Cash
Flow
-22,000
5,000
5,000
5,000
-2,000
2.
A company is considering Project A and have asked you to calculate the Payback Period
and advise whether to accept or reject the project. The cost of capital is 7% and
maximum allowable payback is five years. Please see the attached cash flow projections.
(5 marks)
Time
0
1
2
2
4
5
Cash Flow
-2,000
300
500
500
500
300
3.
Offer of $40,000 today
or
$6,000 annually for 10 years plus $15,000 lump sum at the end of 10
years. Annual interest rate of 8%. Which would you prefer? (5 mark
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