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Calculate project payback period

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Reference no: EM131335996

The Allied Group is considering two investments. The firstinvestment involves a packaging machine, which can be used to package garmentsfor shipping orders to customers. The second possible investment would be amolding machine that would be used to mold the mannequin parts.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

The first possible investment is the packaging machine,which will cost $14,000. The second investment, the molding machine, would cost$12,000. The expected cash flows for the two projects are given below and thecost of capital to the firm is 15%. Both machines will be unusable after fiveyears and have no salvage value.

The net cash flows for the two possible projects are givenin the following table:

Year Packaging Machine Molding Machine

0 ($14000) ($12,000)

1 4100 3200
2 3300 2800
3 2900 2800
4 2200 2200
5 1200 2200

Questions: Address all of the following questions in a briefbut thorough manner.

  • Calculate each project's payback period.
  • Calculate the NPV for each project.
  • Calculate the IRR for each project.
  • If the two projects are independent of each other, whichprojects, if any, should be selected? Explain why or why not.
  • If the two projects are mutually exclusive, which project,if any, should be selected? Explain why.

Reference no: EM131335996

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