Question: As part of its annual capital budgeting cycle, the Welsh Westmede hotel is deciding whether investment proposal A or investment proposal B is more financially justifiable. Investment proposal A requires an initial outlay of £36,000. It is estimated that £3,000 of this initial investment will be salvaged at the end of the investment's five-year life. Investment B also requires an initial investment of £36,000. It is estimated that this asset will be salvaged for £7,000 in five years' time.
- The schedule below presents the timing of estimated increases to Westmede's operating cash flows and also operating profit that would result if either investment were to be made.
