There are two mutually exclusive projects under the active consideration of a company. Both projects have a life of 5 years and have initial cash outlays of $100,000 each. The company pays tax at a 50% rate and the maximum required rate of the company has been given as 10%. The straight-line method of depreciation will be charged on the projects. The projects are expected to generate a net cash flow before taxes as follows: Year Project X Project X 1 2 3 4 5 40,000 40,000 40,000 40,000 40,000 60,000 30,000 20,000 50,000 50,000 Required: With the help of the above-given information, calculate. The pay-back period of each project The average rate of return of each project The net present value of each project.
There are two mutually exclusive projects under the active consideration of a company. Both projects have a life of 5 years and have initial cash outlays of $100,000 each. The company pays tax at a 50% rate and the maximum required rate of the company has been given as 10%. The straight-line method of depreciation will be charged on the projects. The projects are expected to generate a net cash flow before taxes as follows: Year Project X Project X 1 2 3 4 5 40,000 40,000 40,000 40,000 40,000 60,000 30,000 20,000 50,000 50,000 Required: With the help of the above-given information, calculate. The pay-back period of each project The average rate of return of each project The net present value of each project.
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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There are two mutually exclusive projects under the active consideration of a company. Both projects have a life of 5 years and have initial cash outlays of $100,000 each. The company pays tax at a 50% rate and the maximum required rate of the company has been given as 10%. The straight-line method of depreciation will be charged on the projects. The projects are expected to generate a net cash flow before taxes as follows:
|
Year |
Project X |
Project X |
|
1 2 3 4 5 |
40,000 40,000 40,000 40,000 40,000 |
60,000 30,000 20,000 50,000 50,000 |
Required:
With the help of the above-given information, calculate.
- The pay-back period of each project
- The average
rate of return of each project
The
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