HI5002 Finance For Business - Questions Assessment

Week 4

Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. The company requires a 12% return.

Required:

1. Which project should the company select and why? (5 marks)
2. Which project should the company select if the interest rate is 14% at the cash flows in Project B is also at the beginning of each year? (5 marks)