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The following is a simplified project annual income statement for Ma & Pa Incorporated for each year of an eight-year project. Its up-front cost is $2,000. Its cost of capital is 12 percent. Compute the project’s after-tax cash flow. Compute and interpret the project’s NPV, IRR, profitability index, and payback period.

The following is a simplified project annual income statement for Ma & Pa Incorporated for each year of an eight-year project. Its up-front cost is $2,000. Its cost of capital is 12 percent. Compute the project’s after-tax cash flow. Compute and interpret the project’s NPV, IRR, profitability index, and payback period.

Essentials Of Investments
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
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The following is a simplified project annual income statement for Ma & Pa Incorporated for each year of an eight-year project. Its up-front cost is $2,000. Its cost of capital is 12 percent.

  1. Compute the project’s after-tax cash flow.
  2. Compute and interpret the project’s NPV, IRR, profitability index, and payback period.
Sales $925.00 less cash expenses 310.00 less depreciation 250.00 Earnings before taxes $365.00 Less taxes (at 35%) 127.75 Net income $237.25
Transcribed Image Text:Sales $925.00 less cash expenses 310.00 less depreciation 250.00 Earnings before taxes $365.00 Less taxes (at 35%) 127.75 Net income $237.25
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