Question

You are the CFO of a business and have the opportunity to evaluate two different investment opportunities. Information related to these investments follows:

	Investment 1	Investment 2
Investment Cost	$   800,000	$   500,000
Salvage Value	$   40,000	$   50,000
Useful Life	8 years	15 years
Required Rate of Return	10%	10%
Sales	$   450,000	$   400,000
Variable Costs	$   150,000	$   175,000
Fixed Costs (excluding depreciation)	$   100,000	$   150,000
Tax Rate	35%	35%

Your company has a required rate of return of 10% for all new investments and is subject to a tax rate of 35%.

1. Prepare a schedule of expected cash flows for each investment. Note that all positive cash flows must be shown as positive numbers and all negative cash flows must be shown as negative numbers.

Answer 1