Question1234

Question12345

9. A company is considering two mutually exclusive competing projects, A and B, each requiring an up-front outlay of $1 million. The expected future cash flows associated with each of the projects ($'000, stated in nominal terms), along with the annual expected inflation rates, are as follows: Year Project A Project B Inflation 1 400 0 5% 2 250 100 5% 3 600 800 4% 4 300 950 3% The company's real cost of capital is 10%. Calculate the net present value of the projects and advise the company of the appropriate capital investment decision. 4. You are employed as a consultant to a hospital that is considering expenditure on some expensive medical equipment, which costs $100,000. The hospital estimates that the incremental cash flows associated with purchasing the equipment, before any taxes, will be as follows: Year Cash flow 1 25,000 2 3 25,000 25,000 4 40,000 5 50,000 The applicable tax rate is 30%. The equipment can be depreciated for tax purposes at 25% of original cost over four years. The hospital requires an after-tax rate of return of 10% p.a. Calculate the after-tax cash flows and determine whether the equipment should be purchased