Part 3: Capital Budgeting and Project Evaluation Case Study: Assume that the company, where you are working as a team in Financial Department, is considering a potential project with a new product. It will require the company to buy a new equipment that will generate the same revenue for the company each year. The table below shows the initial and annual costs for each option. 3.1. Capital Budgeting Decision Making: Perform capital budgeting technique based on Equivalent Annual Cost (EAC) to advise the Company Management which option should be chosen if the relevant discount rate is 9%? Costs Option A Option B Initial Investment 1,400,000 1,500,000 Year 1 35,000 25,000 Year 2 35,000 25,000 Year 3 35,000 25,000 Year 4 35,000 25,000 Year 5 25,000
Part 3: Capital Budgeting and Project Evaluation
Case Study: Assume that the company, where you are working as a team in Financial Department,
is considering a potential project with a new product. It will require the company to buy a new
equipment that will generate the same revenue for the company each year. The table below shows
the initial and annual costs for each option.
3.1. Capital Budgeting Decision Making: Perform capital budgeting technique based on Equivalent
Annual Cost (EAC) to advise the Company Management which option should be chosen if the
relevant discount rate is 9%?
Costs Option A Option B
Initial Investment 1,400,000 1,500,000
Year 1 35,000 25,000
Year 2 35,000 25,000
Year 3 35,000 25,000
Year 4 35,000 25,000
Year 5 25,000
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