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Q4(a) Smart Metals Company is considering two different investment alternatives. Investment A has an initial cost of $25,000, and investment B has an initial
Q4(a) Smart Metals Company is considering two different investment alternatives. Investment A has an initial cost of $25,000, and investment B has an initial cost of $26,000. Both investments have a useful life of 4 years. The cash flow for the investment, at present day prices, is shown below. The cost of capital is 7% p.a. The cash flows in future years are subject to price changes, as a result of inflation, which is estimated at 1.N % p.a. (i) Which investment is most financially attractive? (40 marks) (ii) (10 marks) What other factors might be considered in making the decision? Investment A's Investment B's Year cash flow ($) cash flow ($) 10,000 9,000 1 9,000 9,000 2 8,000 9,000 3 7,000 9,000 4
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