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Question 1 (evaluating investment projects) Generic Motors Corporation is planning to invest $100,000 in year zero (today) in new equipment. This investment is expected to
Question 1 (evaluating investment projects) Generic Motors Corporation is planning to invest $100,000 in year zero (today) in new equipment. This investment is expected to generate net cash flows of $40,000 a year for the next 4 years (years 1-4). The salvage value after 4 years is zero. The discount rate (cost of capital) is 20% a year. Required: a) What is the net present value (NPV) of this project? NPV = $ Should the firm invest, based on NPV? (1=yes, 2=no) b) What is the payback period for this project? payback period = years c) What is the modified payback period for this project? O between 1 and 2 years O between 2 and 3 years O between 3 and 4 years d) What is the simple rate of return (SRR) for this project? To compute SRR, first compute: annual depreciation=$ annual income=$ investment=$ SRR = % (enter say 10% as 10, not as 0.1 and not as 10%)
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