Aster Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $800,000 and yield the following expected cash flows. Management requires investments to have a payback period of two years, and it requires a 10% return on its investments. Perlod1 Perlod 2 Perlod 3 Perlod 4Cash flow$300,000 $350,000 $400,000 $450,000Required1. Determine the payback period for this investment.2. Determine the break-even time for this investment.3. Determine the net present value for this investment.Analysis Component4. Should management invest in this project? Explain.

Perlod1 Perlod 2 Perlod 3 Perlod 4 Cash flow $300,000 $350,000 $400,000 $450,000 Required 1. Determine the payback period for this investment. 2. Determine the break-even time for this investment. 3. Determine the net present value for this investment. Analysis Component 4. Should management invest in this project? Explain.

Perlod1 Perlod 2 Perlod 3 Perlod 4 Cash flow $300,000 $350,000 $400,000 $450,000 Required 1. Determine the payback period for this investment. 2. Determine the break-even time for this investment. 3. Determine the net present value for this investment. Analysis Component 4. Should management invest in this project? Explain.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section: Chapter Questions

Problem 23SP

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Aster Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $800,000 and yield the following expected cash flows. Management requires investments to have a payback period of two years, and it requires a 10% return on its investments.

Perlod1 Perlod 2 Perlod 3 Perlod 4
Cash flow
$300,000 $350,000 $400,000 $450,000
Required
1. Determine the payback period for this investment.
2. Determine the break-even time for this investment.
3. Determine the net present value for this investment.
Analysis Component
4. Should management invest in this project? Explain.

Formula Formula ROI (%) = Net Income Principal Amount × 100

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