Which project giant machinery should choose

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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. (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification)

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.

Reference no: EM132557691

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