Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a newequipment. Each project will last 5 years and have no salvage value at the end. The company’s requiredrate of return for all investment projects is 9%. The cash flows of the projects are provided below. project 1project 2cost175000185000future cash flows year 17600087000year 28300078000year 36700069000year 46500065000year 55500057000Required:a) Identify which project should the company accept based on NPV method. (Note: Pleaseround 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 thepayback criteria is maximum 2 years. c) Which project Giant Machinery should choose if two methods are in conflict.

Formulas: Net present value(NPV) = Present value of cash inflows - Present value of cash outflow…

Answered: Giant Machinery Ltd is considering to…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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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	175000	185000
future cash flows
year 1	76000	87000
year 2	83000	78000
year 3	67000	69000
year 4	65000	65000
year 5	55000	57000

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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