AXON Mobile Company is involved in searching for locations in which to drill for oil. The firm’s current project requires an initial investment of $150 million and has an estimated life of 10 years. The expected future cash inflows for the project are as shown in the following table: Year Cash inflows 1 $ 6,000,000 2 10,000,000 3 10,000,000 4 20,000,000 5 30,000,000 6 30,500,000 7 40,000,000 8 60,000,000 9 80,000,000 10 120,000,000 The firm’s current cost of capital is 13%. Calculate the payback period for the project. If the firm usually accepts projects that have payback periods between 1 and 7 years, is this project acceptable?
AXON Mobile Company is involved in searching for locations in which to drill for oil. The firm’s current project requires an initial investment of $150 million and has an estimated life of 10 years. The expected future
Year Cash inflows
1 $ 6,000,000
2 10,000,000
3 10,000,000
4 20,000,000
5 30,000,000
6 30,500,000
7 40,000,000
8 60,000,000
9 80,000,000
10 120,000,000
The firm’s current cost of capital is 13%.
Calculate the payback period for the project. If the firm usually accepts projects that have payback periods between 1 and 7 years, is this project acceptable?
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