Project 1 Project 2 Initial Outlay (10) $12,000,000 $16,000,000 Annual Cash Flows (CF) $3,200,000 $5,150,000 Life of system 7 years 5 years Notes: 1) All cash flows are after tax and depreciation. 2) A discount rate of 13% is estimated as the risk in both of these projects.
Project 1 Project 2 Initial Outlay (10) $12,000,000 $16,000,000 Annual Cash Flows (CF) $3,200,000 $5,150,000 Life of system 7 years 5 years Notes: 1) All cash flows are after tax and depreciation. 2) A discount rate of 13% is estimated as the risk in both of these projects.
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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Question
- Your client is investigating two start-up companies that operate in the same construction sector in Australia. These two companies are investigating similar projects (not both) in which they will invest. However, your client is not sure which is better and has sent the relevant details to you to advise. The characteristics of the two projects are given below:
(picture)
Your client wishes you to provide detailed calculations indicating which project you believe to be the best. The client will then decide whether to invest into the company looking to invest in the project
Transcribed Image Text:Project 1
$12,000,000
Project 2
$16,000,000
Initial Outlay (10)
Annual Cash Flows (CF)
$3,200,000
$5,150,000
Life of system
7 years
5 years
Notes: 1) All cash flows are after tax and depreciation.
2) A discount rate of 13% is estimated as the risk in both of these projects.
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