These two companies are investigating similar projects (but not both projects) in which they will invest. The characteristics of the two systems are given below:
Project 1 Project 2
Initial Outlay (IO) $700,000 $2,000,000
Annual Cash Flows (CF) $350,000 $900,000
Life of system 7 years 4 years
All cash flows are after tax and depreciation.
A flat rate of 12% is estimated as the risk in both of these projects.
Decide whether to invest into the company looking to invest in the project