The purchase of a loader is needed to enable the expansion into Windsor. There are two options

Question:

The purchase of a loader is needed to enable the expansion into Windsor. There are two options to consider. Money is worth 10% compounded annually Loader A has a purchase cost of $150 000. Net cash flows would be: • $30 000 per year for the first 3 years,
• $40 000 for the next year,
• $30 000 for the next 4 years,
• $14 000 for the last 2 years,
• Estimated : $20 000 at end of 10 years.
Loader B has a purchase cost of $180 000. Net cash flows would be:
• $20 000 per year for the first 2 years,
• $40 000 per year for the next 3 years,
• $30 000 per year for each of the last 5 years
• Estimated : $11 000 at end of 10 years.
Calculate for each of the loaders:
a. NPV
b. IRR
c. Profitability index
d. Based on this numerical analysis, what advice would you give to Kelsey Bowen?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...