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 $175,000 Project 2 $185,000 Cost Future Cash Flows 87,000 78,000 Year 1 76,000 Year 2 83,000 Year 3 67,000 69,000 65,000 55,000 Year 4 65,000 Year 5 57,000 Required: a) Identify which project should the company accept based on NPV method. 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.
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 $175,000 Project 2 $185,000 Cost Future Cash Flows 87,000 78,000 Year 1 76,000 Year 2 83,000 Year 3 67,000 69,000 65,000 55,000 Year 4 65,000 Year 5 57,000 Required: a) Identify which project should the company accept based on NPV method. 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.
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 3CMA
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