Question
Question 1 A Lake Inc is faced with several investment opportunities. The projects are mutually exclusive, and he is faced with limited capital. Consider the
Question 1 A
Lake Inc is faced with several investment opportunities. The projects are mutually exclusive, and he is faced with limited capital. Consider the following cash flows relating to the projects:
Year Machine A Machine B
0 $ (120 000) $ (105 000)
1 40 000 30 000
2 50 000 45 000
3 35 000 30 000
4 42 000 25 000
5 20 000 20 000
The projects cost of capital is 12%.
A. As a financial analyst you have been asked to perform the following task:
i. Calculate the projects payback period. (2 marks)
ii. Calculate the projects Net Present Value (NPV) (12 marks)
iii. Make a recommendation as to which project should be undertaken and why?
(2 marks)
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