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



  1. Identify which project should your company accept based on Net Present Value method?
  2. 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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