QUESTION : CAPITAL BUDGETINGBand box is considering of new wash and dry equipment in order to expand...

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QUESTION : CAPITAL BUDGETINGBand box is considering of new wash and dry equipment in order to expand its operations.The two types of options are available :a low speed system (LSS)with a$20,000 inital cost and a high speed (HSS) with a $30,000 initial cost.Each system has a fifteen year life and no salvage value.The net cash flows after taxes (CFAT) associated with each investment proposal are :CFAT for years 1 to 15 (LSS):$4,000 (HSS) :$6,000Which speed system should be chosen by band box assuming 14% cost of capital?
	
Document Preview: QUESTION : CAPITAL BUDGETINGBand box is considering of new wash and dry equipment in order to expand its operations.The two types of options are available :a low speed system (LSS)with a$20,000 inital cost and a high speed (HSS) with a $30,000 initial cost.Each system has a fifteen year life and no salvage value.The net  cash flows after taxes (CFAT) associated with each investment proposal are :CFAT for years 1 to 15	(LSS):$4,000	(HSS) :$6,000Which speed system should be chosen by band box assuming 14% cost of capital?

Robert · Accepted Answer

SOLUTION :
The system that produces the higher NPV should be chosen
Dtetermination of NPV :
Low speed machine (LSS)
Years		CFAT		PV FACTOR		TOTAL PV
0 - 15	$4,000	6.142			$24,568
PV of cash inflows	:$24,568
Less Initial Outflow	:$20,000
NPV				:$ 4,

QUESTION : CAPITAL BUDGETING Band box is considering of new wash and dry equipment in order to expand its operations.The two types of options are available :a low speed system (LSS)with a$20,000...

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