Question
Castle Ltd is attempting to evaluate the feasibility of investing $250,000 in a new printing machine with a five-year life. The company has estimated the
Castle Ltd is attempting to evaluate the feasibility of investing $250,000 in a new printing machine with a five-year life. The company has estimated the cash inflows associated with the proposal as shown below. The company has 8% cost of capital.
| Year | Cash Inflows |
| 1 | $50,000 |
| 2 | $95,000 |
| 3 | $83,500 |
| 4 | $91,500 |
| 5 | $101,000 |
Required:
- Calculate the payback period for the proposed investment. (4 marks)
- Calculate the discounted payback period for the proposed investment. (2 marks)
- Calculate the NPV for the proposed investment. (7 marks)
- Would you, as a financial advisor opt for this investment? Why? Why Not? (2 marks)
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Financial Reporting and Analysis Using Financial Accounting Information
Authors: Charles H. Gibson
13th edition
1285401603, 1133188796, 9781285401607, 978-1133188797
