Reference no: EM132557987

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                     76,000                   87,000

Year 2                       83,000                 78,000

Year 3                       67,000                 69,000

Year 4                        65,000                65,000

Year 5                           55,000               57,000

Required:

Question a) Identify which project should the company accept based on NPV method.

Question b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years.

Question c) Which project Giant Machinery should choose if two methods are in conflict.