Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000, CF0, in a machine having a

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Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000, CF0, in a machine having a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown below. The firm has a 12% cost of capital.
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,...
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