Solution-Identify which project should the company accept

Identify which project should the company accept

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Reference no: EM132558573

Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company's required rate of return for all investment projects is 9%. The cash flows of the projects are provided below.

Project 1 Project 2

Cost $175,000 $185,000

Future Cash Flows

Year 1

Year 2

Year 3

Year 4

Year 5

76,000

83,000

67,000

65,000

55,000

87,000

78,000

69,000

65,000

57,000

Required:

a) Identify which project should the company accept based on NPV method. (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification)

b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years.

c) Which project Giant Machinery should choose if two methods are in conflict.

Reference no: EM132558573

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Identify which project should the company accept

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Reference no: EM132558573

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