Question 3
You are working as a finance manager for Fire Fox Transport Ltd. The company is considering to invest in one of the two following projects to buy a new equipment for their storage which is expected to boost the company’s revenue. 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 9.5%. The cash flows of the projects are provided below.
Equipment 1
Equipment 2
Cost
$157,000
$182,000
Future Cash Flows
Year 1
Year 2
Year 3
Year 4
Year 5
67 000
82 000
78 000
64 000
56 000
83 000
94 000
80 000
77 000
73 000
Required:
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