Band Box is considering the purchase of a new wash and dry equipment in order to expand its operation. Two types of options are available: Low-Speed system (LSS) with a Rs. 200,000 initial cost and high-speed system (HSS) with an initial cost of Rs.300,000. Each system has a fifteen year life and no salvage value. The net cash flows after taxes associated with each investment proposal are: Low-Speed System (LSS) High-Speed System (HSS) Cash Flow after Tax 1 through 15 Rs. 40,000 Rs. 60,000 Which system should be chosen? If discount rate is 14% for both options.
Band Box is considering the purchase of a new wash and dry equipment in order to expand its operation. Two types of options are available: Low-Speed system (LSS) with a Rs. 200,000 initial cost and high-speed system (HSS) with an initial cost of Rs.300,000. Each system has a fifteen year life and no salvage value. The net cash flows after taxes associated with each investment proposal are: Low-Speed System (LSS) High-Speed System (HSS) Cash Flow after Tax 1 through 15 Rs. 40,000 Rs. 60,000 Which system should be chosen? If discount rate is 14% for both options.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Question No.1: Band Box is considering the purchase of a new wash and dry equipment in order to expand its operation. Two types of options are available: Low-Speed system (LSS) with a Rs. 200,000 initial cost and high-speed system (HSS) with an initial cost of Rs.300,000. Each system has a fifteen year life and no salvage value. The net cash flows after taxes associated with each investment proposal are:
|
|
Low-Speed System (LSS) |
High-Speed System (HSS) |
|
Cash Flow after Tax 1 through 15 |
Rs. 40,000 |
Rs. 60,000 |
Which system should be chosen? If discount rate is 14% for both options. (10 marks)
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