Giant Shipping Ltd is considering to invest in one of the two following projects to buy a new equipment for its new contracted project. Each equipment will last 5 years and have no salvage value at...


Giant Shipping Ltd is considering to invest in one of the two following projects to buy a new equipment for its new contracted project. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8.5%. The cash flows of the projects are provided below.

























Equipment 1




Equipment 2




Cost



$256,000



$295,000




Future Cash Flows



Year 1



Year 2



Year 3



Year 4



Year 5






  96 000


123 000


183 000


175 000


155 000






98 000


184 000


186 000


195 000


163 000





Required:



a) Identify which option of equipment should the company accept based on Profitability Index



b) Identify which option of equipment should the company accept based on simple pay back method if the payback criterion is maximum 2 years? (



Jun 05, 2022
SOLUTION.PDF

Get Answer To This Question

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here