Question
You are considering a an investment in a project with a life of eight years, an initial outlay of $120,000, and annual after-tax cash flow
You are considering a an investment in a project with a life of eight years, an initial outlay of $120,000, and annual after-tax cash flow of $52,000. The project also requires an increase in inventories of $22,000. This $22,000 investment in inventory is required at the outset of the project and will be released when the project is completed. The appropriate discount factor for this project is 10 percent.
A. Calculate the payback period for this project assuming cash flows are evenly distributed across the year to two places of significance.
B. Calculate the discounted payback period for this project.
C. The firm has a required payback period of three years for both payback and discounted payback. What do your calculations in parts a and b suggest regarding the projects acceptability?
D. Calculate the NPV of this project. Based on your answer should the project be accepted? Explain.
E. Calculate the internal rate of return (IRR) for this project. Based on your answer should the project be accepted? Explain.
F. Calculate the profitability index for this project. Based on your answer should the project be accepted? Explain.
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