A company is considering an investment proposal to install new milling controls. The project will cost Kshs 50,000,000. The facility has a life expectancy of five years and no salvage value. The company’s tax rate is 40%.  The estimated cash flows from the proposed investment proposal are as follows: Year                             CF Kshs 000 1                                           13,000 2                                           14,000 3                                           18,000 4                                           23,000 5                                           25,000 Compute: Accounting Rate of Return Discounted payback period at 6% discounting factor  Net present value at 15% discounting factor and advise management on the project’s feasibility

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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QUESTION TWO

A company is considering an investment proposal to install new milling controls. The project will cost Kshs 50,000,000. The facility has a life expectancy of five years and no salvage value. The company’s tax rate is 40%.  The estimated cash flows from the proposed investment proposal are as follows:

Year                             CF Kshs 000

1                                           13,000

2                                           14,000

3                                           18,000

4                                           23,000

5                                           25,000

Compute:

  1. Accounting Rate of Return
  2. Discounted payback period at 6% discounting factor 
  3. Net present value at 15% discounting factor and advise management on the project’s feasibility
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