The CEO of Australian Car Detailing (ACD), based in Sydney, NSW is considering opening a new...

 

    

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The CEO of Australian Car Detailing (ACD), based in Sydney, NSW is considering opening a new store to meet the surging demand in Adelaide, SA. She has identified two options using different sets of equipment that can be used in this new store. Option A requires an initial investment of $550,000, while Option B is more expensive with an initial investment of $750,000. ACD's cost of capital is X.XX% [Use the last three digits of your student ID as the market rate. For example, if your student ID is 876543 then the rate would be 5.43%] ACD's CFO has provided the following cash flow estimates: Year (t) Option A Option B 1 $190,000 $210,000 2 288,000 210,000 3 276,000 210,000 4 210,000 5 210,000 6 210,000 Requirements: A. Calculate the Net Present Value (NPV) of each option. Which option would the CEO choose? [4] B. Calculate the Equivalent Annual Value (EAV) of each option. Which option would the CEO choose? [4] C. Calculate the Payback Period for each option. Which option would the CEO choose? [4] The CEO of Australian Car Detailing (ACD), based in Sydney, NSW is considering opening a new store to meet the surging demand in Adelaide, SA. She has identified two options using different sets of equipment that can be used in this new store. Option A requires an initial investment of $550,000, while Option B is more expensive with an initial investment of $750,000. ACD's cost of capital is X.XX% [Use the last three digits of your student ID as the market rate. For example, if your student ID is 876543 then the rate would be 5.43%] ACD's CFO has provided the following cash flow estimates: Year (t) Option A Option B 1 $190,000 $210,000 2 288,000 210,000 3 276,000 210,000 4 210,000 5 210,000 6 210,000 Requirements: A. Calculate the Net Present Value (NPV) of each option. Which option would the CEO choose? [4] B. Calculate the Equivalent Annual Value (EAV) of each option. Which option would the CEO choose? [4] C. Calculate the Payback Period for each option. Which option would the CEO choose? [4]

Answer rating: 100% (QA)

Answer A NPV Option A year Cash Flow Discount Rate543 DCF 1 190000 0948 18021436 2 288000 ... View the full answer