Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
calculate the

Transcribed Image Text:Pepper Co is contemplating three available investment opportunities, the
cash flows of which are given below.
Project
Initial
investment
Cash flow
Y1
Y2
Y3
Y4
Y5
$000
$000
$000
$000
S000
$000
(125)
50
50
50
50
(120)
15
15
15
15
200
(170)
120
In each case the initial investment represents the purchase of plant and
equipment whose realisable value will be 20% of initial cost, receivable in
addition to the above flow at the end of the life of the project.
80
Required:
For each of the three projects:
(a) Calculate the accounting rate of return (based on the average
investment method)
(b) Calculate the payback period
(c) Calculate the net present value using a discount rate of 10%
(d) Calculate the internal rate of return
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