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 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)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 22E
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Question
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
|
|
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)
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