Croda Corp. needs a new gizmo for production of its 2003-2004 models. You have been appointed to do capital budgeting analysis. You have identified two
different machines that are capable of performing the job. You have completed the cash flow analyis and the expected net cash flows are as follows:
Year
0
1
2
3
4
Gizmo 1
(5000)
2085
2085
2085
2085
Gizmo 2
($5000)
0
0
0
9677
1.) What is payback period for Machine B?
a.) 2.4 years
b.) 3.0 years
c.) 2.6 years
d.) 2.0 years
e.) 1 year
2.) If the cost of capital for the project is 14 percetny at the time the decision is made which machine would you choose?
a.) Gizmo 1; it has the higher positive NPV
b) Either; both have the same NPV.
c.) Gizmo 1; it has the higher IRR
d.) Gizmo 2; it has the higher positive NPV
e.) Niether; both have negative NPVs
PLEASE SHOW WORK. NO PICTURES!