Capital Investment Analysis
Gyro Corporation is considering two investment projects, each of which will cost $1,340,000. The estimated cash flow for each project is as follows.
|
Year
|
Plant Expansion
|
Retail Store Expansion
|
|
1
|
450,000
|
500,000
|
|
2
|
450,000
|
400,000
|
|
3
|
340,000
|
350,000
|
|
4
|
280,000
|
250,000
|
|
5
|
180,000
|
200,000
|
|
Total
|
1,700,000
|
1,700,000
|
The company has decided that a 10% discount rate is appropriate for each project.
Required:
1. Calculate the payback period for each project.
2. Calculate the Net Present Value (NPV) of each project.
3. Advise management on which, if either, project to pursue and why.
Use an Excel spreadsheet for your answers.
You need to do deep and clear analysis.
Show your work by writing the formulas.
Follow the instructions carefully.