In: Finance
Your manager has tasked you with evaluating two alternative projects for the company’s expansion:
The first option costs $200,000 with the expected cash inflow to the firm estimated at $60,000 per year after depreciation and tax. The life of this project is 7 years.
The second option costs $350,000 and has a life span of 10 years. The cash inflow to the firm from this option is estimated to be $80,000 per annum, again after depreciation and tax.
This company has a cost of capital of 15%. Assume other similar projects will be implemented at the end of these two projects, whichever is chosen.