Assignment 5

A capital investment project requires an investment of $50,000 and has an expected life of 4 years. Ignore tax. Annual cash flows at the end of each year are as follows:

Year

Amount in $

1

15,000

2

20,000

3

25,000

4

15,000

REQUIRED

1. Compute the payback period assuming that the cash flows occur evenly throughout the year

2. Determine the accounting rate of return for the project based on the initial investment

3. If the discount rate is 10% , what is the profitability index.

A capital investment project requires an investment of $50,000 and has an expected life of 4 years. Ignore tax. Annual cash flows at the end of each year are as follows: Year 1 2 3 4 Amount in $ 15,000 20,000 25,000 15,000 REQUIRED 1. Compute the payback period assuming that the cash flows occur evenly throughout the year 2. Determine the accounting rate of return for the project based on the initial investment 3. If the discount rate is 10%, what is the profitability index