Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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
Project 1Cost $175,000
Project 2 Cost $185,000
Future Cash Flows
For Project 1 Year 1 Year 2 Year 3 Year 4 Year 5
is 76,000 83,000 67,000 65,000 55,000 respectively.
For Project 2 it is
87,000 78,000 69,000 65,000 57,000 for Year 1 Year 2 Year 3 Year 4 Year 5 resp.
Required: a) Identify which project should the company accept based on
b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years.
c) Which project Giant Machinery should choose if two methods are in conflict
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