Craddle Creek Pty Ltd is considering the purchase of a new production line to replace the existing one. There are two options available in the market: Project 1: Purchase a machine using the current technology with similar productivity. The machine's purchase price is $750,000 with a shipping and installation cost of $100,000. Craddle Creek must invest $50,000 in net working capital to start the operation. The machine will be in use for 5 years and will be fully depreciated by the end of year 5. Project 2: Purchase a machine using the latest technology which significantly increases the productivity and the machine's useful life. The machine's purchase price is $1,300,000 with shipping and installation costs of $200,000. The machine will be in use for 8 years and will be fully depreciated by the end of year 8. Craddle Creek must invest 120,000 in net working capital to start the operation.

Part A Calculate the initial investment in both projects

Part B The annual operating cash flows over the life of the projects are as follows:

Time	Project 1	Project 2
1	220,000	250000
2	280,000	300000
3	300,000	350000
4	320,000	360000
5	415000	390000
6		425000
7		435000
8		450000

Craddle Creek usually evaluates capital projects by its WACC of 9.5% Using NPV as the decision criteria, which project should be selected for investment? Why? Part C Using the annual cash flows provided above, calculate the IRR of both projects. Based on IRRs, which project should be selected for investment? Part D In making investment decisions in Projects 1 and 2, what factors must be accounted for in a comprehensive analysis and evaluation? Should you decide by simply using NPV and IRR calculated above? If not, suggest how we should evaluate projects 1 and 2 and which project you should choose for investment.