Problem:
Lotus Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this yeas capital budget. The projects are independent. The firms cost of capital is 12%. The after tax cash flows, including depreciation, for the truck and the pulley are as follows:
- Year Truck Pulley
- 0 -50000 -70000
- 1 10000 15000
- 2 10000 15000
- 3 10000 15000
- 4 10000 15000
- 5 10000 15000
- 6 10000 15000
- 7 10000 15000
Requirement:
Question 1: What is the NPV for the truck?
Question 2: What is the NPV for the pulley?
Note: Please show how you came up with the solution.