New Moon Limited is looking into some potential investment projects. Relevant information is summarised below:

Project SU12 SW 15

Cost of Investment $800,000 $800,000

Estimated net cash flows

Year $ $

1 140,000 150,000

2 190,000 220,000

3 220,000 280,000

4 290,000 310,000

5 320,000 370,000

The required rate of return is 8%.

Year Cash Flow Discount Factor at ____ (to fill the discount factor) Present Value of Cash Flow $ $

Note: Copy the above table and complete the calculations in your answer file.

a. Calculate the Net Present Value (NPV) of both projects.

(Note: round off the values to the nearest dollar)

b. Evaluate and advise the management which one of the projects should be undertaken, if any.

c. Project Swiss has a payback of 4.5 years and Project Vic has a payback period of 4.3 years.

Required:

Advise New Moon Limited, which project should be selected undertaken and why.