Question: CAPITAL BUDGETING
X Company is exmanining two mutually exclusive proposals for new capital investment.The data on the proposals are as follows
A B
($) ($)
Net cash outlay 40000 50000
Salvage value Nil Nil
Estimated life 4 years 4 years
Depricistion SLM SLM
Income Tax rate 50% 50%
Cut off rate for appraisal 10% 10%
EBIT
Ist Year 12000 14000
2nd Year 14000 16000
3rd Year 16000 18000
4th Year 22000 22000
5th Year - 20000
You are asked to advise which proposal would be financially preferable.