Question
Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000 in a machine having a 5-year life. The firm has estimated the cash inflows
Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000 in a machine having a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown below. The firm has a 12 percent cost of capital.
End of Year ( t ) Cash Inflows ( CF t )
1 $18,000
2 $22,500
3 $27,000
4 $31,500
5 $36,000
a. Calculate the payback period for the proposed investment.
b. Calculate the NPV for the proposed investment.
c. Calculate the IRR 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? Why?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started