You are the CFO of Black Gold Mining Ltd, which is offering an investment in two (2) large projects with the cash flows presented in the table below. Your company can only choose one of the projects (I or II), as shown in the table.
|Project I||Project II|
|Cost||$550 000||$640 000|
| Future Cash Flows
Undertake the project evaluation and identify which project Black Gold Mining should choose, using:
- The Net Present Value (NPV) method with the discount rate of 12%
- The Payback Period (PBP) method with benchmark of maximum 2 years
- If there is a conflict between the NPV method and the PBP method, which investment criteria should the company use to make the final capital budgeting decision and why?
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