Question
A company is considering an investment proposal to install new milling controls. The project will cost Kes50,000. The facility has a life expectancy of five
A company is considering an investment proposal to install new milling controls. The project will cost Kes50,000. The facility has a life expectancy of five years and no salvage value. The companys tax rate is 40%. The estimated cash flows from the proposed investment proposal are as follows: Year CF 1 10,000 2 11,000 3 14,000 4 15,000 5 25,000 Compute: a. Accounting Rate of Return and advise management if the required rate of return is 6 % b. Traditional Payback period and advise management on the feasibility of the project c. Discounted payback period at 6% discounting factor
d. Net present value at 6% discounting factor and advise management on the projects feasibility e. Net present value at 15% discounting factor and advise management on the projects feasibility f. Internal rate of return and explain its significance to the firm g. Profitability Index at 10% discounting factor
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