You are considering a product with an initial cash outlay of$80,000 and expected free cash flows of

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You are considering a product with an initial cash outlay of$80,000 and expected free cash flows of $20,000 at the end of the year for 6years. The required rate of return for this project is 10%.
a) What is the projects payback period?
b) What is the project’s Net Present value (NPV)?
c) What is the project’s profitability index (PI)?
d) What is the project’s internal rate of Return (IRR)?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment...
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Foundations of Finance The Logic and Practice of Financial Management

ISBN: 978-0132994873

8th edition

Authors: Arthur J. Keown, John D. Martin, J. William Petty

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