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Assessment Task – Tutorial Questions
Week 7
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:
- Identify which project should the company accept based on NPV method. (4 marks) (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification)
- Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years. (4 marks)
- Which project Giant Machinery should choose if two methods are in conflict. (2 marks)
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