Case Study: Assume that the company, where you are working as a team in Financial Department, is considering a potential project with a new product. It will require the company to buy a new equipment that will generate the same revenue for the company each year. The table below shows the initial and annual costs for each option. 3.1. Capital Budgeting Decision Making: Perform capital budgeting technique based on Equivalent Annual Cost (EAC) to advise the Company Management which option should be chosen if the relevant discount rate is 9%? Option A Costs Initial Investment Year 1 Year 2 Option B 1,400,000 35,000 35,000 1,500,000 25,000 25,000 25,000 25,000 25,000 Year 3 35,000 Year 4 35,000 Year 5
Case Study: Assume that the company, where you are working as a team in Financial Department, is considering a potential project with a new product. It will require the company to buy a new equipment that will generate the same revenue for the company each year. The table below shows the initial and annual costs for each option. 3.1. Capital Budgeting Decision Making: Perform capital budgeting technique based on Equivalent Annual Cost (EAC) to advise the Company Management which option should be chosen if the relevant discount rate is 9%? Option A Costs Initial Investment Year 1 Year 2 Option B 1,400,000 35,000 35,000 1,500,000 25,000 25,000 25,000 25,000 25,000 Year 3 35,000 Year 4 35,000 Year 5
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
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Part 3: Capital Budgeting and Project Evaluation
Case Study: Assume that the company, where you are working as a team in Financial Department,
is considering a potential project with a new product. It will require the company to buy a new
equipment that will generate the same revenue for the company each year. The table below shows
the initial and annual costs for each option.
3.1. Capital Budgeting Decision Making: Perform capital budgeting technique based on Equivalent
Annual Cost (EAC) to advise the Company Management which option should be chosen if the
relevant discount rate is 9%?
Option B
1,500,000
25,000
25,000
25,000
Costs
Option A
1,400,000
35,000
Initial Investment
Year 1
Year 2
35,000
Year 3
35,000
Year 4
35,000
25,000
Year 5
25,000
3.2. Risk Analysis and Project evaluation:
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