Company ABC is trying to make the best use of its cash by purchasing a new...

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Company ABC is trying to make the best use of its cash by purchasing a new equipment costing $600,000. The life of the new equipment is estimated to be FOUR (4) years and is expected to generate an additional annual profits of $200,000. Company plan to sell the equipment for its salvage value of $50,000. The company's current hurdle rate is 10%. Evaluate with an example why companies sometimes choose a lower percentage return but higher absolute dollar value opportunity. (10 marks) Company ABC is trying to make the best use of its cash by purchasing a new equipment costing $600,000. The life of the new equipment is estimated to be FOUR (4) years and is expected to generate an additional annual profits of $200,000. Company plan to sell the equipment for its salvage value of $50,000. The company's current hurdle rate is 10%. Evaluate with an example why companies sometimes choose a lower percentage return but higher absolute dollar value opportunity. (10 marks)

Answer rating: 100% (QA)

Certainly Id be happy to help you understand why companies sometimes choose a lower percentage return but higher absolute dollar value opportunity Lets use the example of Company ABCs equipment purcha... View the full answer