Your company is considering to choose one of the two projects: Project Gold and Project Diamond. 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 two projects are provided below. Gold Diamond Cost $485 000 $520 000 Future Cash Flow Year 1 105 850 117 050 Year 2 153 250 162 400 Year 3 225 650 275 500 Year 4 245 000 255 000 Year 5 250 350 260 000 Required: a. Identify which project should your company accept based on Net Present Value method? b. Identify which project should your company accept based on Discounted Payback Period method if the payback criterion is maximum 2.5 years?
Your company is considering to choose one of the two projects: Project Gold and Project Diamond. 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 two projects are provided below. Gold Diamond Cost $485 000 $520 000 Future Cash Flow Year 1 105 850 117 050 Year 2 153 250 162 400 Year 3 225 650 275 500 Year 4 245 000 255 000 Year 5 250 350 260 000 Required: a. Identify which project should your company accept based on Net Present Value method? b. Identify which project should your company accept based on Discounted Payback Period method if the payback criterion is maximum 2.5 years?
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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Your company is considering to choose one of the two projects: Project Gold and Project Diamond. Each project will last 5 years and have no salvage value at the end. The company’s required rate of
| Gold | Diamond | |
| Cost | $485 000 | $520 000 |
| Future Cash Flow | ||
| Year 1 | 105 850 | 117 050 |
| Year 2 | 153 250 | 162 400 |
| Year 3 |
225 650 |
275 500 |
| Year 4 | 245 000 | 255 000 |
| Year 5 | 250 350 | 260 000 |
Required:
a. Identify which project should your company accept based on
b. Identify which project should your company accept based on Discounted Payback Period method if the payback criterion is maximum 2.5 years?
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