You are evaluating a project that will cost $500,000, but is expected to produce cash flows of $125,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 11% and your company's preferred payback period is three years or less. a. What is the payback period of this project? b. Should you take the project if you want to increase the value of the company? *round to two decimal places*
You are evaluating a project that will cost $500,000, but is expected to produce cash flows of $125,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 11% and your company's preferred payback period is three years or less. a. What is the payback period of this project? b. Should you take the project if you want to increase the value of the company? *round to two decimal places*
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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3. You are evaluating a project that will cost
$500,000, but is expected to produce cash flows of $125,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 11% and your company's preferred payback period is three years or less.
a. What is the payback period of this project?
b. Should you take the project if you want to increase the value of the company?
*round to two decimal places*
Transcribed Image Text:ent to Bl
You are evaluating a project that will cost $500,000, but is expected to produce cash flows of $125,000 per year for 10 years, with the first cash flow in one year.
Your cost of capital is 11% and your company's preferred payback period is three years or less.
a. What is the payback period of this project?
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b. Should you take the project if you want to increase the value of the company?
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a. What is the payback period of this project?
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b. Should you take the project if you want to increase the value of the company? (Select from the drop-down menus.)
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If you want to increase the value of the company you
take the project since the NPV is
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