LMN Inc. is considering selecting a new equipment out of two mutually exclusive options. The...
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Accounting
- LMN Inc. is considering selecting a new equipment out of two mutually exclusive options. The company's cost of capital is 11% and the tax rate is 28%. Other information relating to both options is as follows:
Particulars | Equipment 1 | Equipment 2 |
Cost of equipment | 900,000 | 1,200,000 |
Expected life | 5 years | 5 years |
Annual Revenue (before Tax & depreciation) | 250,000 | 320,000 |
- Depreciation is charged on a straight-line basis. You are required to calculate: a. NPV b. Internal Rate of Return (IRR) c. Discounted payback d. Profitability index
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