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Olympus Systems is evaluating two new projects. The required rate of return is 18%.Project Silver:Initial...

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Accounting

Olympus Systems is evaluating two new projects. The required rate of return is 18%.

Project Silver:

  • Initial Investment: $(270,000)
  • Year 1: $100,000
  • Year 2: $105,000
  • Year 3: $110,000
  • Year 4: $130,000

Project Gold:

  • Initial Investment: $(290,000)
  • Year 1: $95,000
  • Year 2: $100,000
  • Year 3: $105,000
  • Year 4: $140,000

a. Compute the payback period for each project. Based on the payback period, which project is preferred?

b. Compute the net present value (NPV) for each project. Based on NPV, which project is preferred?

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