take in building houses Management is trying to select the best investment from among these alternative independent projects. Each alternative involves an initial outlay of $160,000 and a 10% cost of capital. Management requires that all project investments should be recovered in 4 years. Their cash flows are as follows: Year Kinstown St Christina St Thomp St Bess 1 60,000 40,000 41,000 0 2 50,000 60,000 41,000 60,000 3 40,000 0 41,000 0 4 30,000 40,000 41,000 56,000 5 20,000 20,000 41,000 50,000 6 8,000 60,000 0 80,000
You currently work at Happy home Construction company The government offered the company 4 projects to undertake in building houses Management is trying to select the best investment from among these alternative independent projects. Each alternative involves an initial outlay of $160,000 and a 10% cost of capital. Management requires that all project investments should be recovered in 4 years. Their
|
Year |
Kinstown |
St Christina |
St Thomp |
St Bess |
|
1 |
60,000 |
40,000 |
41,000 |
0 |
|
2 |
50,000 |
60,000 |
41,000 |
60,000 |
|
3 |
40,000 |
0 |
41,000 |
0 |
|
4 |
30,000 |
40,000 |
41,000 |
56,000 |
|
5 |
20,000 |
20,000 |
41,000 |
50,000 |
|
6 |
8,000 |
60,000 |
0 |
80,000 |
3a. Distinguish between Capital Expenditure and Revenue Expenditure citing,THREE examples of each.
b.Explain the time value of money and the role of cost of capital in appraising investments.
PLEASE DO QUESTION 3 A-B
Step by step
Solved in 4 steps
