Question 4 (10 marks)

Harper Mining Ltd is considering to invest in one of the two following equipment. Each equipment will last 5 years and have no salvage value at the end. The companys required rate of return for all investment projects is 7%. The cash flows of the projects are provided below.

	Equipment 1	Equipment 2
Cost	$150,000	$165,000
Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5	56,000 53,000 65,000 55,000 43,000	67,000 74,000 62,000 65,000 53,000

Required: a) Identify which option of equipment should the company accept based on net present value (NPV) method.(5 marks) (Note: All answers should be rounded up to 2 decimal places) ANSWER: b) Identify which option of equipment should the company accept based on discounted pay back method.(5 marks)