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A firm is considering an investment project. The project requires an initial investment of $500,000 and will have no residual value at the end of
A firm is considering an investment project. The project requires an initial investment of $500,000 and will have no residual value at the end of 5 years. The cost of capital (borrowing) is 10%. The project will generate the following profits: Year 1 $50,000 Year 2 $100,000 Year 3 $150,000 Year 4 $150,000 Year 5 $150,000 (a) What will be the payback period for this project (in year's to two decimal places)? (2 marks) (b) If the firm has established a payback period of 4 years, should the project be accepted? (1 marks)
| A firm is considering an investment project. The project requires an initial investment of $500,000 and will have no residual value at the end of 5 years. The cost of capital (borrowing) is 10%. The project will generate the following profits: | ||||||
| Year 1 | $50,000 | |||||
| Year 2 | $100,000 | |||||
| Year 3 | $150,000 | |||||
| Year 4 | $150,000 | |||||
| Year 5 | $150,000 | |||||
| (a) | What will be the payback period for this project (in year's to two decimal places)? (2 marks) | |||||
| (b) | If the firm has established a payback period of 4 years, should the project be accepted? | |||||
| (1 marks) | ||||||
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Financial and Managerial Accounting the basis for business decisions
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
18th edition
125969240X, 978-1259692406
