Question 3 Data Corp needs to buy new equipment to pursue new business lines in order...

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Question 3 Data Corp needs to buy new equipment to pursue new business lines in order to increase its value. The company has two options: Option A B Initial Investment 15,000 20,000 Expected Rev (per yr) 6,000 5,000 Main. Costs (per yr) 3,000 2,100 Expected Life (yrs) 6 13 Salvage Value 6,000 13,000 Also assume Option B will get a tax rebate of $2,000 in year 4 and $1,500 in year 8. Data Corp has a beta of 1.3, the risk free rate is 2.5% and the market risk premium is 8%. A. Calculate the IRR each option. B. Calculate the NPV of each option C. Calculate the Profitability Index (PI) of each option. D. Calculate the Equivalent Annual Annuity (EAC/EAA) of each option. Question 3 Data Corp needs to buy new equipment to pursue new business lines in order to increase its value. The company has two options: Option A B Initial Investment 15,000 20,000 Expected Rev (per yr) 6,000 5,000 Main. Costs (per yr) 3,000 2,100 Expected Life (yrs) 6 13 Salvage Value 6,000 13,000 Also assume Option B will get a tax rebate of $2,000 in year 4 and $1,500 in year 8. Data Corp has a beta of 1.3, the risk free rate is 2.5% and the market risk premium is 8%. A. Calculate the IRR each option. B. Calculate the NPV of each option C. Calculate the Profitability Index (PI) of each option. D. Calculate the Equivalent Annual Annuity (EAC/EAA) of each option.

Answer rating: 100% (QA)

A Calculate the IRR each option Option A Initial Investment 15000 Cash Flow Year 1 6000 Cash Flow Year 2 3000 IRR 994 Option B Initial Investment 2000... View the full answer