ealthy Food Ltd is considering to invest in one of the two following projects to buy new machinery. Each option will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 7%. The cash flows of the projects are provided below. Machinery 1 Machinery 2 Cost $396,000 $415,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 123,000 194,000 205,000 215,000 228,000 196, 000 204,000 212,000 217,000 233,000 Required: Identify which option of machinery 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)
ealthy Food Ltd is considering to invest in one of the two following projects to buy new machinery. Each option will last 5 years and have no salvage value at the end. The company’s required rate of
|
|
Machinery 1 |
Machinery 2 |
|
Cost |
$396,000 |
$415,000 |
|
Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 |
123,000 194,000 205,000 215,000 228,000 |
196, 000 204,000 212,000 217,000 233,000 |
Required:
Identify which option of machinery 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)
NET PRESENT VALUE
Net Present value is one of the Important Capital Budgeting Technique.
Net Present value is helpful to taken Decisions related to Either Accepting or Rejecting the Project.
NET Present value is Computed :—
= PV of Cash Inflow - Cash Outflow
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