Equipment is depreciated over 5 years on a straight line basis and the cost of capital for Noothercompany Limited is 12.50%.
a. For each of the investment alternatives, calculate the
i. Net present value
ii. Internal Rate of Return
iii. Payback Period in years and days
iv. Accounting rate of return (on an average basis, not per year), and
v. Recommend, with reasons, which of the investment proposals should be approved.
b. Discuss whether Noothercompany Limited should undertake sensitivity analysis as part of its capital investment decision making process and identify which variables should be sensitised in this case and explain why?