A company has $320,000 to invest in either Project M or Project N. The cash flows are as follows:
Project M generates cash flows of $80,000 each year for five years. Project N generates cash flows of $20,000 in the first year, $40,000 in the second year, $80,000 in the third year, $130,000 in the fourth year, and $100,000 in the fifth year. The discount rate is 9%.
Required:
1.For each project, calculate the:
oSimple payback period
oDiscounted payback period
oNet present value
2.Prepare a cash flow statement for the chosen project over the five years.
3.Advise the company on which project to select based on the results of your calculations.