HI5002 Finance For Business - Tutorial Questions Assessment

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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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