You are considering a project that will require an initial outlay of $54,200. This project has an expect life of 5 years and will generate after-tax cash flows to the company as a whole of $20,608 at the end of each year over its 5-year life. In addition to the $20,608 cash flow from operations during the fifth and final year, there will be an additional cash inflow of $13,200 at the end of the fifth year associated with the salvage value of a machine, making the cash flow in year 5 equal to $33,808. Thus the cash flows associated with this project look this: Cash Flow -$54,200 20,608 20,608 Year 1 2 3 Year 4 5 6 Given a required rate of return of 15 percent, calculate the following: a. Payback period b. Net present value c. Profitability index d. Internal rate of return Should this project be accepted? Cash Flow 20,608 20,608 20,608

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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No1. You are considering a project that will require an initial outlay of $54,200. This project
has an expect life of 5 years and will generate after-tax cash flows to the company as a
whole of $20,608 at the end of each year over its 5-year life. In addition to the $20,608
cash flow from operations during the fifth and final year, there will be an additional
cash inflow of $13,200 at the end of the fifth year associated with the salvage value of
a machine, making the cash flow in year 5 equal to $33,808. Thus the cash flows
associated with this project look this:
Year
1
2
3
Cash Flow
-$54,200
20,608
20,608
Year
4
5
6
Given a required rate of return of 15 percent, calculate the following:
a. Payback period
b. Net present value
c. Profitability index
d. Internal rate of return
Should this project be accepted?
Cash Flow
20,608
20,608
20,608
Transcribed Image Text:No1. You are considering a project that will require an initial outlay of $54,200. This project has an expect life of 5 years and will generate after-tax cash flows to the company as a whole of $20,608 at the end of each year over its 5-year life. In addition to the $20,608 cash flow from operations during the fifth and final year, there will be an additional cash inflow of $13,200 at the end of the fifth year associated with the salvage value of a machine, making the cash flow in year 5 equal to $33,808. Thus the cash flows associated with this project look this: Year 1 2 3 Cash Flow -$54,200 20,608 20,608 Year 4 5 6 Given a required rate of return of 15 percent, calculate the following: a. Payback period b. Net present value c. Profitability index d. Internal rate of return Should this project be accepted? Cash Flow 20,608 20,608 20,608
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