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Question 4 (10 Marks) A company is considering the installation of a new air conditioning...

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Accounting

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Question 4 (10 Marks) A company is considering the installation of a new air conditioning system in its main plant. There are two models namely the HCC and the LCC. The HCC model has a high initial capital cost but relatively low maintenance cost. On the other hand, the LCC model has a low initial capital cost but relatively higher maintenance cost. The cost of purchasing and maintaining the two models over their useful life of five years is given as follows. 0 5 | + 2 + 3 + HCC $600,000 $50,000 -$50,000 $50,000 -$50,000 -$50,000 LCC -$100,000 -$175,000 $175,000 -$175,000 - $175,000 $175,000 (1) If the company's cost of capital is 7%, which unit would you recommend? (3 marks) Click or tap here to enter text. (ii) If the Managing Director of the company wants to know the IRR for investment in the two units, what would you tell him? (2 mark) Click or tap here to enter text. (iii) If the company's cost of capital rose to 15%, would your recommendation in part (1) change? (3 marks) Click or tap here to enter text. (iv) Provide an appropriate reason for your answer in part (iii) above. (2 marks)

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