Question
A firm has an opportunity to invest in a project to install new production equipment. It will cost them $1,500,000 upfront to purchase and install
A firm has an opportunity to invest in a project to install new production equipment.
It will cost them $1,500,000 upfront to purchase and install the equipment. The firms cost of capital is 7%. It is expected that the increased cashflow from the new equipment (above what the current cashflows are) will be as follows:
Yr 1: $500,000
Yr 2, $1,000,000
Yr 3 $1,000,000
Yr 4: $600,000
Yr: 5 $500,000
- Whatisthepaybackperiod?Showyourcalculation.
- Whatisthedrawbackorlimitationofusingthepaybackperiodtochooseprojects?
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Financial Management Theory And Practice
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
3rd Canadian Edition
017658305X, 978-0176583057
