Question

Week 4
Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. The company requires a 12% return.
Required:
b Which project should the company select if the interest rate is 14% at the cash flows in Project Bis also at the beginning of each year? (5 marks)

Answer 1

Answer:

Explanation:

It is observed that, project A present value is more because the payments are made at the beginning of the year. Another reason is, in case of project A cash flows are received for 8 years and in case for project B cash flows are only for 7 years