Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Builders Inc. is considering a project with an initial cost of $185,000 and expecting $45,000 in year 1; $50,000 in year 2; $75,000 in year
Builders Inc. is considering a project with an initial cost of $185,000 and expecting $45,000 in year 1; $50,000 in year 2; $75,000 in year 3; $40,000 in year 4; $0 in year 5 in cash flows. Assume that WACC is 18% and the beta for the company's stock is 1.8, and the firm wants to recover its initial investment in 3.85 years (or less). Based on relevant information, answer the questions below. a) (30 Points) What is the payback period? Write out your equation(s) clearly and show your input(s). b) (10 Points) Would the firm accept the project based on the payback period? Briefly explain why. Clearly label your findings (e.g., xyz ratio =.....) and designate which part of the question you are answering (if there are multiple parts). Write out your equations clearly. Show your work by typing it in Canvas. Answers (whether correct or incorrect) without work shown will receive zero points. Simply typing your work will suffice. (e.g., x = y + 2z). No need to use mathematical functions in Canvas. In each part of the question (when there is a calculation): Leave four decimal places in intermediate steps. Leave four decimal places for the final answer (only two decimal places if it is a dollar amount).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started