If the two projects are independent of each other, which projects, if any, should be selected?

Individual Course Project 4-5 pages

The Allied Group is considering two investments. The first investment involves a packaging machine, which can be used to package garments for shipping orders to customers. The second possible investment would be a molding machine that would be used to mold the mannequin parts.

The first possible investment is the packaging machine, which will cost $14,000. The second investment, the molding machine, would cost $12,000. The expected cash flows for the two projects are given below and the cost of capital to the firm is 15%. Both machines will be unusable after five years and have no salvage value.

The net cash flows for the two possible projects are given in the following table:

Year            Packaging Machine           Molding Machine 

0                          ($14000)                            ($12,000)

1                             4100                                     3200

2                             3300                                     2800

3                             2900                                     2800

4                             2200                                     2200

5                             1200                                     2200

Questions: Address all of the following questions in a brief but thorough manner.

  • Calculate each project’s payback period.
  • Calculate the NPV for each project.
  • Calculate the IRR for each project.
  • If the two projects are independent of each other, which projects, if any, should be selected? Explain why or why not.
  • If the two projects are mutually exclusive, which project, if any, should be selected? Explain why.

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