Your company is considering to choose one of the two projects: Project Gold and Project Diamond. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of two projects are provided below.
| Gold | Diamond | |
| Cost | $485 000 | $520 000 |
| Future Cash Flows
Year 1 Year 2 Year 3 Year 4 Year 5
|
105 850 153 250 225 650 245 000 250 350
|
117 050
162 400 275 500 255 000 260 000 |
Required:
- Identify which project should your company accept based on Net Present Value method?
- Identify which project should your company accept based on Discounted Payback Period method if the payback criterion is maximum 2.5 years?
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