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Homework answers / question archive / Mr Smith was approached by external consultants who were offering two investment projects suiting the company’s business strategy
Mr Smith was approached by external consultants who were offering two investment projects suiting the company’s business strategy. Project A. Capital outlay of $1’000’000, 10-year life, and 10% discount rate Project B. Capital outlay $1’600’000, 15-year life, and 10% discount rate Help the team of financial managers to compute the equivalent annual costs for both projects and to make an investment decision. What are the equivalent annual costs for the project A and project B? Which one is a better investment option for Amazing Integration Ltd.?
EAC=Initial Cost*rate/(1-1/(1+rate)^n)
Project A=1000000*10%/(1-1/1.1^10)=162745.394882512
Project B=1600000*10%/(1-1/1.1^15)=210358.043019795
Project A is better
