Question
Quest 2: Note: need detailed explanation, how to process with BAII calculator. You are considering the following two mutually exclusive projects. Project 1: Cash Flow
Quest 2:
Note: need detailed explanation, how to process with BAII calculator.
You are considering the following two mutually exclusive projects.
Project 1: Cash Flow in Year 1: $21,500, Year 2: $13,500, Year 3: $10,000. For this project 1, you need to buy a machine in the beginning (Year 0) for $36,000 and you can sell it for $3,500 at the end of its useful life in Year 3.
Project 2: Cash Flow in Year 1: $13,690, Year 2: $11,500, Year 3: $25,300. For this project 2, you need to buy a machine in the beginning (Year 0) for $36,000 but there is no salvage value at the end of its useful life in Year 3.
For each project, you require 10% rate of return. And you have a limited investment capital of $36,000.
Questions:
Calculate NPV and IRR of each project. Should you invest in one of the two projects? If yes, which one and why?
What is the payback period for each project? Should you use payback period in your investment decision? Why or Why not?
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