Project 1 is to build a medium-sized garage for a client over two years. The client will pay $10,000 as a deposit immediately, $40,000 the year after and $85,000 in the final year. Your company has a small loan of $10,000 with 5% interest to go towards this project that must be paid back in the end. $30,000 of materials will be bought all at once in the first year. As well as a piece of equipment that requires a $10,500 down payment and yearly payments of $1500 following. Labor for the project is $15,000 in the first year and $6000 per year after. Administration costs including taxes are $4000 in year one and $1000 per year after. 

 

Project 2 is the purchase and installation of a new piece of equipment for your company with a life span of 3 years. The equipment costs $50,000 up front and $9,000 to run in the following years. You have the same sources of funding (loan and investor's equity) and administration costs as project 1. The equipment will save your company $25,000 beginning the year after installation and has a salvage value of $12,000 at the end of its lifespan. 

a) How much is the initial (net) investment of the company for project 1? 

1. b) How much is the initial (net) investment of the company for project 2?

Answer rating: 100% (QA)

Solution a The initial net investment of the company for project 1 is 10000 deposit 30000 ma... View the full answer