ason Corporation is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is Rs 17.1 million, and that for the pulley system is Rs 22.43 million. The firm’s cost of capital is 15 percent. After-tax cash flows, including depreciation, are as follows: Year Truck Pulley 1 Rs in million 5.1 Rs in million $6.5 2 5.5 7.0 3 5.0 7.5 4 6.0 8.0 5 7.0 8.5 Required: Calculate for each: a) Internal Rate of Return, b) Net Present Value, c) Modified Internal Rate of Return, reinvestment rate is 10% d) Payback Period, e) Discounted Payback Period f) Indicate the correct accept/reject decision for each project.
ason Corporation is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is Rs 17.1 million, and that for the pulley system is Rs 22.43 million. The firm’s cost of capital is 15 percent. After-tax cash flows, including depreciation, are as follows: Year Truck Pulley 1 Rs in million 5.1 Rs in million $6.5 2 5.5 7.0 3 5.0 7.5 4 6.0 8.0 5 7.0 8.5 Required: Calculate for each: a) Internal Rate of Return, b) Net Present Value, c) Modified Internal Rate of Return, reinvestment rate is 10% d) Payback Period, e) Discounted Payback Period f) Indicate the correct accept/reject decision for 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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Question
Jason Corporation is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is Rs 17.1 million, and that for the pulley system is Rs 22.43 million. The firm’s cost of capital is 15 percent. After-tax cash flows, including
|
Year |
Truck |
Pulley |
|
1 |
Rs in million 5.1 |
Rs in million $6.5 |
|
2 |
5.5 |
7.0 |
|
3 |
5.0 |
7.5 |
|
4 |
6.0 |
8.0 |
|
5 |
7.0 |
8.5 |
Required:
Calculate for each:
- a)
Internal Rate of Return , - b)
Net Present Value , - c) Modified Internal Rate of Return, reinvestment rate is 10%
- d) Payback Period,
- e) Discounted Payback Period
- f) Indicate the correct accept/reject decision for each project.
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