The Great Eastern Toys Company is evaluating a new product. The cash flows that are expected from this product over its five years’ expected life are shown be- low. Note that the final year’s cash flow includes $2,000 of working capital to be recovered at the end of the project.
Cash Flow
Now.............. −$18,000
End-of-Year 1 to 4......... 5,200
End-of-Year 5 ............ 7,200
a. Compute the following measures:
1. Payback period
2. Discounted payback period at a 10 percent discount rate
3. Net present value at a 10 percent discount rate
4. Internal rate of return
5. Profitability index
b. Should the project be undertaken?

  • CreatedMarch 27, 2015
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