You are employed as an analyst for a financial management consulting firm. You are asked to evaluate two capital project proposals from two clients. The evaluation must be supported by your analysis and calculations. The memorandum must also include a brief explanation of the concepts applied and how they are used in the decision making process.

Capital Investment Option I. W Manufacturing, Inc is considering two investments, both of which cost $35,000,000. The cost of capital (WACC) is 10% for the company. The projects are mutually exclusive. The cash flows are as follows:

Year Project A Project B

1 $42,000,000 $30,000,000

2 $28,000,000 $25,000,000

3 $21,000,000 $56,000,000

Which of the two projects should be chosen based upon the:

1. payback method.

2. net present value method

Should a firm normally have more confidence in the payback method or the net present value method?

Capital Investment Option II.

Another company, A Cleaning Supplies, Inc. is considering the purchase of a warehouse automated picking system at a cost of $2,132,000, delivered and installed. The machine is forecasted to provide $300,000 per year in cash flow for nine years. The companys cost of capital (WACC) is 11%. Using the Internal Rate of Return Method, evaluate this investment and state whether or not the investment should be undertaken and why.