You are evaluating a project that will cost $543,000, but is expected to produce cash flows of $127,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 10.9% 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?
You are evaluating a project that will cost $543,000, but is expected to produce cash flows of $127,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 10.9% 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?
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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Question
You are evaluating a project that will cost
$543,000,
but is expected to produce cash flows of
$127,000
per year for
10
years, with the first cash flow in one year. Your cost of capital is
10.9%
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?
Transcribed Image Text:You are evaluating a project that will cost $543,000, but is expected to produce cash flows of $127,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 10.9% 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?
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