Question 1

Gogo Company is contemplating a 5-year capital investment project with estimated revenues of JD80,000 per year and estimated cash operating expenses of JD50,000 per year. The initial cost of the plant and equipment for the project is JD50,000, and the company expects to sell the equipment for JD5,000 at the end of the 5th year. P&E will be fully depreciated over 4 years on a straight-line basis for tax purposes. The project requires a working capital investment of JD20,000 at its inception. The cost of capital for Amman is 10%. Assume a 40% marginal tax rate for the company.

Requirement

1- Calculate the payback period for the project.

2- Calculate the cash flow in the final year.

3- Calculate the net present value for the project

4- Calculate the Discounted Payback Period