Alex runs a small company called Ask Your Neigbour Pty Ltd, which hires equipment for an...

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Alex runs a small company called Ask Your Neigbour Pty Ltd, which hires equipment for an hour charge. Alex has had enquires from customers looking to hire a Forklift and a Tip Truck. Alex currently does not have either of these but would like to expand his equipment available for hire. Alex can only afford either a Forklift or a Tip Truck and is unsure which is the best investment. Alex provides the following estimates from his research: Year 0 Forklift Tip Truck (70,000) Discount rate 10% 1 2 3 (47,500) 17,500 21,250 14,250 21,750 25,000 28,750 1 0.90909 0.82645 0.75132 Additional information: the relevant cash inflows for both would be received consistently thoughout the year/s. Required: After conducting your analysis, answer the following questions. a) Does the Forklift or the Tip Truck have the shortest Payback Period? b) If the cost of capital for Ask Your Neighbour Pty Ltd is 10%, which purchase has the highest Net Present Value at the end of year 3? c) Based on your analysis, should Alex purchase the Forklift or the Tip Truck? Alex runs a small company called Ask Your Neigbour Pty Ltd, which hires equipment for an hour charge. Alex has had enquires from customers looking to hire a Forklift and a Tip Truck. Alex currently does not have either of these but would like to expand his equipment available for hire. Alex can only afford either a Forklift or a Tip Truck and is unsure which is the best investment. Alex provides the following estimates from his research: Year 0 Forklift Tip Truck (70,000) Discount rate 10% 1 2 3 (47,500) 17,500 21,250 14,250 21,750 25,000 28,750 1 0.90909 0.82645 0.75132 Additional information: the relevant cash inflows for both would be received consistently thoughout the year/s. Required: After conducting your analysis, answer the following questions. a) Does the Forklift or the Tip Truck have the shortest Payback Period? b) If the cost of capital for Ask Your Neighbour Pty Ltd is 10%, which purchase has the highest Net Present Value at the end of year 3? c) Based on your analysis, should Alex purchase the Forklift or the Tip Truck?

Answer rating: 100% (QA)

Answer To determine the answers to the questions we need to calculate the payback period and net pre... View the full answer