Fly High Ltd has an opportunity to invest in a project that would operate for four years. The capital contribution required is $20,000 and the following estimates have been made.

An alternative proposition is the purchase of new equipment for $20 000 which would result in an estimated annual saving of $7500 over a four year period. Fly High uses a discount rate of 16% p.a.
Required:
a) Calculate the net present value for each option. Ignore tax considerations.
b) Calculate the payback period for each option.
c) Advise Fly High Ltd, with reasons, which project you would recommendation they undertake.
Present Value Tables
Present Value of $1.00

Present Value of a series of $1.00 cash flows

Transcribed Image Text:

201320142015 2016 Cash inflows 16 000 64 000 80 000 22 000 Cash outflows 15 000 52 000 67000 18 000 023-26 3 6007 100000 0795-29 976791 487655 100000 03-72-67 99-9136 287765 100000 12345 025684 497 6272 6 6 101223 077243 486394 030275 g99 28640 10-1233 6 ri 1 2 3 4 5