Key Concept Exercise Part A

Date Published: 06 October, 2017

Key Concept Exercise Part A

For the following exercise, complete the calculations below. Evaluate different capital investment appraisal techniques by completing the calculations shown below:

Bongo Ltd. is considering the selection of one of two mutually exclusive projects. Both would involve purchasing machinery with an estimated useful life of 5 years.

Project 1 would generate annual cash flows (receipts less payments) of £200,000; the machinery would cost £556,000 with a scrap value of £56,000.

Project 2 would generate cash flows of £500,000 per annum; the machinery would cost £1,616,000 with a scrap value of £301,000.

Bongo uses straight-line depreciation. Its cost of capital is 15% per annum.

Assume ...

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