Question
Management of a manufacturing business is considering an investment of $375,000 in a capital project and $ 200,000 in working capital during the first year
Management of a manufacturing business is considering an investment of $375,000 in a capital project and $ 200,000 in working capital during the first year of operation. The project will generate $90,000 in cash inflows each year over the next twelve years. At the end of the project, the company will sell the assets for $200,000 and recover the entire working capital. The companys weighted average cost of capital is 12%. Label answers (i.e $ or %) and use commas appropriately. Round to the nearest whole number.
1. What is undiscounted cash outflow?
2. What is the total undiscounted cash inflow?
3. What is the undiscounted net cash flow?
4. Use the schedule of cash flows below to compute the payback period? (label "____ years and _____ months" for example, 4 years and 9 months)
Years | Annual Net Cash Flows | Cumulative Cash Flows |
0 | (375,000) | (375,000) |
1 | (110,000) | (485,000) |
2 | 90,000 | (395,000) |
3 | 90,000 | (305,000) |
4 | 90,000 | (215,000) |
5 | 90,000 | (125,000) |
6 | 90,000 | (35,000) |
7 | 90,000 | 55,000 |
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