Question
Gyro Corporation is considering two investment projects, each of which will cost $1,340,000. The estimated cash flow for each project is as follows. Retail Plant
Gyro Corporation is considering two investment projects, each of which will cost $1,340,000. The estimated cash flow for each project is as follows.
| Retail | ||
| Plant | Store | |
| Year | Expansion | Expansion |
| 1 | 450,000 | 500,000 |
| 2 | 450,000 | 400,000 |
| 3 | 340,000 | 350,000 |
| 4 | 280,000 | 250,000 |
| 5 | 180,000 | 200,000 |
| Total | 1,700,000 | 1,700,000 |
The company has decided that a 10% discount rate is appropriate for each project.
Required:
- Calculate the payback period for each project.
- Calculate the Net Present Value (NPV) of each project.
- Advise management on which, if either, project to pursue and why.
Use an Excel spreadsheet for your answers.
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Intermediate Accounting Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
12th Canadian edition
119-49633-5, 1119496497, 1119496330, 978-1119496496
