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Aster Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $800,000 and yield the following expected cash flows. Management requires investments to have a payback period of two years, and it requires a 10% return on its investments.

Period Cash Flow

1 . . . . . . . . . . . . . $300,000

2 . . . . . . . . . . . . . 350,000

3 . . . . . . . . . . . . . 400,000

4 . . . . . . . . . . . . . 450,000

Required

1. Determine the payback period for this investment.

2. Determine the break-even time for this investment.

3. Determine the net present value for this investment.

Analysis Component

4. Should management invest in this project? Explain.

Period Cash Flow

1 . . . . . . . . . . . . . $300,000

2 . . . . . . . . . . . . . 350,000

3 . . . . . . . . . . . . . 400,000

4 . . . . . . . . . . . . . 450,000

Required

1. Determine the payback period for this investment.

2. Determine the break-even time for this investment.

3. Determine the net present value for this investment.

Analysis Component

4. Should management invest in this project? Explain.

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... 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,...

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