Ribu Riban Company is attempting to evaluate the feasibility on investing $95,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table. The firm has a 12% cost of capital. Year (t) Cash inflows(CFt) – $ 1 20,000 2 25,000 3 30,000 4 35,000 5 40,000 a. Calculate the net present value (NPV) for the proposed investment. b. Calculate the internal rate of return (IRR) for the proposed investment. c. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why? d. What if NPV and IRR result contradicts one another. Theoretically which result should you choose? How about practically? Is there any difference? Discuss.
Ribu Riban Company is attempting to evaluate the feasibility on investing $95,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table. The firm has a 12% cost of capital. Year (t) Cash inflows(CFt) – $ 1 20,000 2 25,000 3 30,000 4 35,000 5 40,000 a. Calculate the net present value (NPV) for the proposed investment. b. Calculate the internal rate of return (IRR) for the proposed investment. c. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why? d. What if NPV and IRR result contradicts one another. Theoretically which result should you choose? How about practically? Is there any difference? Discuss.
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
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Ribu Riban Company is attempting to evaluate the feasibility on investing $95,000 in a piece
of equipment that has a 5-year life. The firm has estimated the
the proposal as shown in the following table. The firm has a 12% cost of capital.
| Year (t) | Cash inflows(CFt) – $ |
| 1 | 20,000 |
| 2 | 25,000 |
| 3 | 30,000 |
| 4 | 35,000 |
| 5 | 40,000 |
a. Calculate the
b. Calculate the
c. Evaluate the acceptability of the proposed investment using NPV and IRR. What
recommendation would you make relative to implementation of the project? Why?
d. What if NPV and IRR result contradicts one another. Theoretically which result should
you choose? How about practically? Is there any difference? Discuss.
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