Question 2

New Age Ltd is considering investing in one of the two following projects to buy a new assembly line. Each option will last 5 years and have no salvage value at the end. The companys required rate of return for all investment projects is 9%. The cash flows of the projects are provided below.

	Assembly Line 1	Assembly Line 2
Cost	$386,000	$425,000
Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5	136 000 213 000 283 000 215 000 175 000	197 000 184 000 186 000 265 000 263 000

Required:

1. Identify which option of assembly line the company should accept based on the NPV method (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification)
2. Identify which option of assembly line the company should accept based on the Profitability Index method.