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 1 Project 2Cost $175,000 $185,000Future Cash FlowsYear 1Year 2Year 3Year 4Year 576,00083,00067,00065,00055,00087,00078,00069,00065,00057,000 Identify which project should the company accept based on NPV method.
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 1 Project 2Cost $175,000 $185,000Future Cash FlowsYear 1Year 2Year 3Year 4Year 576,00083,00067,00065,00055,00087,00078,00069,00065,00057,000 Identify which project should the company accept based on NPV method.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter12: Capital Investment Decisions
Section: Chapter Questions
Problem 21BEA
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Question
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
Project 1 Project 2
Cost $175,000 $185,000
Future Cash Flows
Year 1
Year 2
Year 3
Year 4
Year 5
76,000
83,000
67,000
65,000
55,000
87,000
78,000
69,000
65,000
57,000
Identify which project should the company accept based on
Expert Solution
Step 1
Given information:
Initial cost of Project 1 is -$175,000
Initial cost of Project 2 is -$185,000
Rate of return is 9%
Step 2
Calculation of NPV of the project:
Excel workings:
Step by step
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