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The management team of Loch Ness Ltd. has the following potential projects available to its production business.

PROJECT #1 - New loading machine

Cost$150,000

Cost savings per year$45,000

Life of machine5 years

Salvage$8,000

Project #2 - New boxing machine

Cost$125,000

Cost savings per year$35,000

Life of machine5 years

Salvage$25,000

Project #3 - New filter line

Cost$200,000

Cost savings per year$60,000

Life of machine5 years

Salvage$5,000

Loch Nesshas alternate investments that earn 12%.

PART 1

To help management decide on its capital budgeting planning for next year, you have been asked to provide guidance as to prioritizing the projects. Provide the following

NPV for each project

Profitability index for each project

Order of priority for the projects

PART 2

Calculate the simple payback in years for each project. Ignore salvage values.

The management team of Loch Ness Lid. has the following potential projects available to its production business. PROJECT #1 - New loading machine Cost $150,000 Cost savings per year $45,000 Life of machine 5 years Salvage $8,000 Project #2 - New boxing machine Cost $125,000 Cost savings per year $35,000 Life of machine 5 years Salvage $25,000 Project #3 - New filter line Cost $200,000 Cost savings per year $60,000 Life of machine 5 years Salvage $5,000 Loch Ness has alternate investments that earn 12%. REQUIRED: PART 1 To help management decide on its capital budgeting planning for next year, you have been asked to provide guidance as to prioritizing the projects. Provide the following (11 Marks): NPV for each project Profitability index for each project Order of priority for the projects PART 2 Calculate the simple payback in years for each project. Ignore salvage values

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