Question
Green Wave Inc. is considering an investment of $396,000 in an asset with an economic life of six years. The firm estimates that the annual
Green Wave Inc. is considering an investment of $396,000 in an asset with an economic life of six years. The firm estimates that the annual cash revenues and expenses at the end of the first year will be $255,000 and $130,000, respectively. Revenues are expected to grow thereafter at a rate of 10 percent per year while expenses are expected to grow by 6% per year. Green Wave will use the straight-line method to depreciate its asset to zero over five years. There is no salvage value. The required payback period is 4 years, and the discounted payback period is 4.5 years. Green Wave has a marginal tax rate of 30%, and the required rate of return is 11 percent. Based on NPV, IRR, PI, payback period, and discounted payback period, which methods indicate project acceptance, and which indicate project rejection?
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