Happy Valley Homes(HVH) manufactures and sells wood stoves to customers. HVH is thinking of investing in a new technology that will help them more efficiently manufacture and increase the quality of the wood stoves. There are two different tools, though, that HVH can invest in to do that. The information that HVH has given you
Option 1: Initial investment of 10,000 with cash flows of 2,000 in years 1 and 2, and cash flow of 6,000 in year 3, with no cash flows in year 4.
Option 2: Initial investment of 5000 with cash flows of 1,000 in year 2, cash flows of 2,000 in year 3, and cash flows of 3,000 in year 4.
The discount rate is 15%.
HVH wants to know the following:
A. What is the payback period discounted payback period for both options?
B. If you were to use a 4 year cut off for the discount payback, how would each project be affected?
C. What is the NPV of each project?
D. Which project, if any, would you recommend and why?
For each question, please show all workings and calculations as well as formulas. Get Finance homework help today