Bunnings Ltd is considering to invest in one of the two following projects to buy a newequipment. Each equipment will last 5 years and have no salvage value at the end. Thecompany's required rate of return for all investment projects is 89%. The cash flows of theprojects are provided below.Equipment 1 Equipment 2Cost $186,000 S195,000Future Cash FlowsYear 1Year 2Year 3Year 4Year 586 00093 00083 00075 00055 00097 00084 00086 00075 00063 000Required:a) Identify which option of eauipment should the company accept based onProfitability Index? (..b) Identify which option of equipment should the company accept based ondiscounted pay back method if the payback criterion is maximum 2 years?

The profitability index is the ratio of the present value of all the cash inflows and cash outflows.…

Answered: Bunnings Ltd is considering to invest…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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