Question
Payback, NPV, and IRRRieger International is evaluating the feasibility of investing $77,000 in a piece of equipment that has a 5-year life. The firm has
Payback, NPV, and IRRRieger International is evaluating the feasibility of investing $77,000 in a piece of equipment that has a
5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table:
11%. The firm has a cost of capital.
| Year (t) | Cash inflows (CF) |
|
| 1 | $25,000 | |
| 2 | $30,000 | |
| 3 | $20,000 | |
| 4 | $20,000 | |
| 5 | $20,000 |
a.Calculate the payback period for the proposed investment.
b.Calculate the net present value (NPV) for the proposed investment.
c.Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment.
d.Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project?
a. The payback period of the proposed investment is _____ years. (Round to two decimal places.)
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International Financial Management
Authors: Jeff Madura
2nd Edition
0314430296, 978-0314430298
