Analyze which piece of equipment is a better capital investment based on the information given below. (Round the answer to the nearest whole number.)

	Equipment 1		Equipment 2
Cost	$4,000		$4,000
The minimum desired rate of return	10%		10%
Expected useful life	2 years		3 years

Yearly expected cash flows to be received:

	Equipment 1		Equipment 2
Year 1	$3,000		$2,500
Year 2	$2,500		$1,500
Year 3	$0		$1,500

Year	Present value of $1 at 10%
Year 1	0.909
Year 2	0.826
Year 3	0.751

The residual value of Equipment 2 at the end of Year 2 is $1,350.

a). Equipment 2 is a better investment as its net present value is lesser than that of Equipment 1.

b). Equipment 2 is a better investment as its net present value is greater than that of Equipment 1.

c). Equipment 1 is a better investment as its net present value is greater than that of Equipment 2.

d). Equipment 1 is a better investment as its net present value is lesser than that of Equipment 2.

Answer rating: 100% (QA)

Equipment 1 Present value of cash flow 3000090925000826272720654792 Net Present value 4... View the full answer