Question
Wells Fargo & Company is evaluating a project that requires an initial investment of $450,000. The asset is depreciated over five years at 20% per
Wells Fargo & Company is evaluating a project that requires an initial investment of $450,000. The asset is depreciated over five years at 20% per year. The expected cash flows are:
Year | Inflow ($) | Outflow ($) |
Year 1 | 140,000 | 60,000 |
Year 2 | 150,000 | 65,000 |
Year 3 | 160,000 | 70,000 |
Year 4 | 170,000 | 75,000 |
Year 5 | 180,000 | 80,000 |
a. Calculate the internal rate of return (IRR).
b. What is the payback period?
c. Assuming a cost of capital of 9%, what is the net present value (NPV) of the cash flows?
d. Should Wells Fargo & Company proceed with the project?
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Financial and Managerial Accounting Information for Decisions
Authors: John Wild, Ken Shaw, Barbara Chiappetta
5th edition
978-1259317552, 1259317552, 978-0078025600, 78025605, 978-1259335013, 1259335011, 978-1259347641
