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Calculate the simple payback in years for each project

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Reference no: EM132800011

Question - The management team of Ogopogo Ltd. has the following potential projects available to its production business.

PROJECT #1 - New feeder machine

Cost $180,000

Cost savings per year $55,000

Life of machine 5 years

 Salvage $10,000

Project #2 - New packaging machine

Cost $100,000

Cost savings per year $32,000

Life of machine 5 years

Salvage $20,000

Project #3 - New processing line

Cost $200,000

Cost savings per year $60,000

Life of machine 5 years

Salvage $0

Ogopogo has alternate investments that earn 15%.

REQUIRED -

PART 1 - To help management decide on its capital budgeting planning for next year, you have been asked to provide guidance as to prioritizing the projects. Provide the following:

NPV for each project

Profitability index for each project

Order of priority for the projects

PART 2 - Calculate the simple payback in years for each project. Ignore salvage values.

Reference no: EM132800011

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