Question
a. Find the net present value, b. interpret whether the NPV suggests you should accept or reject the project, c. find the payback period, d.
a. Find the net present value, b. interpret whether the NPV suggests you should accept or reject the project, c. find the payback period, d. find the discounted payback period, e. find the profitability index, f. interpret whether the profitability index suggests you should accept or reject the project, g. find the internal rate of return, h. explain whether the internal rate of return can repay the cost of borrowing money to conduct the project, i. find the modified internal rate of return, and j. explain whether the modified internal rate of return can repay the cost of borrowing money to conduct the project. All for the following situation:
The initial capital outlay is $75,000, the annual operating cash flows are $9,375, the project will run for 25 years, the after-tax-salvage cash flow is guessed to be $150,000, the required rate of return on this project is 8.9% and the company weighted average cost of capital is 7.5%.
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