Calculate the normal payback period (NPP) for each equipment.

 Payback period = 2+40000/80000= 2.5 years

For polishing machine:

 Payback period = 1+50000/50000 = 1 year

1.      Calculate the Discounted payback period (DPP) for each equipment.

Solution:

For vacuum cleaner:

 Discounted payback period = 2+53914/60080 = 2+0.89 = 2.89 years or almost 3 years

For polishing machine:

 Discounted payback period = 2+10975/30040 =2+ 0.36 =2.36 years

2.      What is each equipment net present value (NPV).

Solution:

For vacuum cleaner:

For polisher machine:

3.      What is each equipment’s internal rate of return (IRR)?

Solution:

For vacuum cleaner:

For polisher machines:

4.      Are these projects independent or mutually exclusive?

Ans. 

         Mutually exclusive project means that company has to select any one project for the investment according to different criteria. This decision can be taken by the management. But company as enough capital to invest in both projects so in this regard we consider that both projects are independent and company is going to invest in both project at the same time due to sufficient capital.

5.      Indicate the correct accept –reject decision for each criterion. Show how you analyze through each criterion.

Ans.

         for both project companies is using different criteria to determine which project is more profitable and which is not. Here we are using four different methods like normal payback period, discounted payback period, net present value and internal rate of return. If the project acceptance –rejection depend on these criteria then results will be given as under:

6.      Does any conflict arise between NPV and IRR, if the cost of capital is 5%? If yes which criteria and which project would you suggest?

Ans.

        If the cost of capital moves to 5% then the result of NPV and IRR are almost same for both the projects. And no any conflict arises because the IRR still remain the same. Normally if the selection of project happens then the NPV criteria are sounds valid and also used in many places. So if the NPV of the project is positive then the project will be accepted otherwise if company don’t want to accept the other project who is having negative NPV then in that company no need to invest their capital.