Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000, CF0, in a machine having a
Question:
Year............... Cash Flows
1................. $18,000
2................. $22,500
3................. $27,000
4................. $31,500
5................. $36,000
a. Calculate the payback period for the proposed investment.
b. Calculate the NPV for the proposed investment.
c. Calculate the IRR for the proposed investment.
d. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why?
Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
Step by Step Answer:
a The payback period is 356 years b NPV ...View the full answer
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
Related Video
NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.
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