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)
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)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Week 7
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
|
Project 1 |
Project 2 |
Cost |
$175,000 |
$185,000 |
Future Cash flow |
|
|
Year1 |
76,000 |
87,000 |
Year2 |
83,000 |
78,000 |
Year3 |
67,000 |
69,000 |
Year4 |
65,000 |
65,000 |
Year5 |
55,000 |
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.
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