Section 5 (8 Marks) [CLO 5] (Q12) (8 marks) Ronaldo Inc. is considering expanding with a new product to its existing pro

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Section 5 8 Marks Clo 5 Q12 8 Marks Ronaldo Inc Is Considering Expanding With A New Product To Its Existing Pro 1 (39.19 KiB) Viewed 24 times

Section 5 (8 Marks) [CLO 5] (Q12) (8 marks) Ronaldo Inc. is considering expanding with a new product to its existing product lines of industrial bearings. The company has identified two mutually exclusive for two different models of bearings, one GX30 and another LT50. Both these projects require a different type of machine as initial investment and the projected cash flows are as below. LT50 GX30 (575,000) 225,000 (650,000) 225,000 Year 0 Profit year 1 Profit year 2 Profit year 3 Profit year 4 220,000 320,000 345,000 350,000 155,000 275,000 The company requires a minimum return of 10% per annum on the capital invested. (a) Find the payback period for both the projects of GX30 and LT50. (3 marks) (b) Evaluate the two options using the Net Present Value method (4 marks) (c) Suggest which project is more preferable giving a clear interpretation of both the techniques applied in parts above. (1 mark)