• Read below problem and try to solve it based on what you have learned so far;

Equipment Purchasing

The R&R construction companys purchasing organization with the approval of the CEO is to procure an excavator for their projects rather than outsourcing them. This is a fully loaded CAT 450 loader backhoe, priced at $300,000. The estimated life of this machine is 10 years and during that period the estimated after-tax cash flows (EATCF) are given below. The investments required rate of return is 15%.

Year	0	1	2	3	4	5	6	7	8	9	10
EATCF ($1000)	-$300	$50	$55	$60	$60	$65	$65	$70	$70	$75	$75

Evaluate this investment, in terms of:

a) Average rate of Return

b) Net Present Value

c) Profitability index