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NPV and Other Criteria
Waddington International Inc. has $20 million to invest. It is considering whether to build a new factory in Western Canada. The land and the building will cost $15 million payable today. The machines and equipments will cost another $5 million but payable at the end of the first year. It is expected that the factory will generate cash flow of $3 million per year for the next 15 years. The company's cost of capital is 10%.
(a) Calculate the Net Present Value (NPV) and the internal rate of return (IRR) of the Western Canada project.
(b) Calculate the NPV and PI of each project.
(c) Which project or projects should the company choose and why?
Big Joe's is changing a piece of equipment. The equipment will cost $5,000 and has a 5 year life. The equipment can be leased for annual payment of $1,295 paid at the starting of
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