Giant Shipping Ltd is considering to invest in one of the two following projects to buy a new equipment for its new contracted project. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8.5%. The cash flows of the projects are provided below.     Equipment 1 Equipment 2 Cost $256,000 $295,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5     96 000 123 000 183 000 175 000 155 000   98 000 184 000 186 000 195 000 163 000   Required:   a) Identify which option of equipment should the company accept based on Profitability Index   b) Identify which option of equipment should the company accept based on simple pay back method if the payback criterion is maximum 2 years? (

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.