There are two project options to choose from and decide a better option for the company based on the initial investment (cost to buy and install) and the savings (cash flow) that will result from each option as shown in the table below. • Project option A is a package that will cost £10,000 to buy and instal. • Project option B is a package that will cost £6,000 to buy and install. Year Option A Option B 0 -10,000 -6000 1 2,500 2000 2 2,500 2000 3 2,500 2000 4 £2,500 1000 5 2,500 1000 6 2,500 750 7 2,500 750 8 2,500 500 a. Which option should be chosen and why based on the Investment appraisal payback period method
There are two project options to choose from and decide a better option for the company based on the initial investment (cost to buy and install) and the savings (cash flow) that will result from each option as shown in the table below.
• Project option A is a package that will cost £10,000 to buy and instal.
• Project option B is a package that will cost £6,000 to buy and install.
|
Year |
Option A Option B |
|
0 |
-10,000 -6000 |
|
1 |
2,500 2000 |
|
2 |
2,500 2000 |
|
3 |
2,500 2000 |
|
4 |
£2,500 1000 |
|
5 |
2,500 1000 |
|
6 |
2,500 750 |
|
7 |
2,500 750 |
|
8 |
2,500 500 |
a. Which option should be chosen and why based on the Investment appraisal payback period method.
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