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 $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 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 .

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.

Explanation:

                              Project 1      Project 2

Cost                      $175, 000    $185 ,000

Future Cash Flows

Year 1                     $76,000    $83,000

Year 2                    $67,000    $65,000

Year 3                    $55,000    $87,000

Year 4                    $78,000    $69,000

Year 5                    $65,000    $57,000

NPV:

Project 1 = -175000 + 76000/1.09 + 67000/1.09² + 55000/1.09³ + 78000/1.09⁴ + 65000/1.09⁵ = $91,090

Project 2 = -185000 + 83000/1.09 + 65000/1.09² + 87000/1.09³ + 69000/1.09⁴ + 57000/1.09⁵ = $98,960

Payback:

Project 1 = -175000 - 76000 - 67000 = 32000 after 2 years, then 32000 / 55000 = 7 months

Project 2 = -185000 - 83000 - 65000 =  37000 after 2 years, then 37000 / 87000 = 5 months

a

explanation:

anyone below or above ambitious can tell you. so crowns mean brainliest. getting brainliest means your answer needs a good explanation and the person asking the question can understand your answer easily. so say there's a multiple choice question. you don't just want to say your answer is a, hope it . provide evidence and reasoning so that they know that that is the correct answer. a good explanation should have evidence, good reasoning, and your opinion on why you picked that. you don't want to look up their question on the internet and see if you can answer it. pick questions that you 100% know the answer to, so than that way you can provide a better explanation.

best of luck,

the divergent